EBSA (Formerly PWBA) Federal Register Notice
Prohibited Transaction Exemption 2000-05; Exemption Application No. D-10542, et al.; Grant of Individual Exemptions; Business Men's Assurance Company of America, et al. [02/08/2000]
[PDF Version]
Volume 65, Number 26, Page 6223-6228
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
Prohibited Transaction Exemption 2000-05; Exemption Application
No. D-10542, et al.; Grant of Individual Exemptions; Business Men's
Assurance Company of America, et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), transferred the authority of the Secretary of the
Treasury to issue exemptions of the type proposed to the Secretary of
Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Business Men's Assurance Company of America (BMA) Located in Kansas
City, MO
[Prohibited Transaction Exemption 2000-05; Exemption Application No. D-
10542]
Exemption
Section I. Covered Transactions
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to (1) the sales and transfers of assets of an employee
benefit plan (the Plan) to BMA pursuant to the terms of a benefit-
responsive or a non-benefit responsive synthetic guaranteed investment
contract (the Benefit-Responsive BMA Synthetic GIC or the Non-Benefit
Responsive BMA Synthetic GIC) entered into by the Plan sponsor with
BMA; \1\
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\1\ Unless specifically noted, references to the BMA Synthetic
GIC refer to both types of Synthetic GIC products that are offered
to Plan investors by BMA.
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(2) Advances made by BMA to a Plan in order to make unanticipated
benefit payments, if applicable, under a Benefit-Responsive BMA
Synthetic GIC; and (3) the sweeping of interest and other proceeds to
BMA from a Plan's Contractholder Custodial Account established under
either a Benefit-Responsive BMA Synthetic GIC or a Non-Benefit
Responsive BMA Synthetic GIC. This exemption is subject to the general
conditions set forth below in Section II.
Section II. General Conditions
(a) The decision to enter into a BMA Synthetic GIC is made on
behalf of a participating Plan in writing by a fiduciary of such Plan
which is independent of BMA.
(b) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to purchase BMA Synthetic GICs;
provided however that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (i.e., the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan
Asset Regulation), which entity has
[[Page 6224]]
purchased a BMA Synthetic GIC, the foregoing $50 million requirement is
deemed satisfied if such trust or other entity has aggregate assets
which are in excess of $50 million; provided that, if the fiduciary
responsible for making the investment decision on behalf of such master
trust or other entity is not the employer or an affiliate of the
employer, such fiduciary has total assets under its management and
control, exclusive of the $50 million threshold amount attributable to
plan investment in the commingled entity, which are in excess of $100
million, or
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (i.e., the Unrelated Plans), whose assets are commingled
for investment purposes in a group trust or any other form of entity
the assets of which are ``plan assets'' under the Plan Asset
Regulation, which entity has purchased a BMA Synthetic GIC, the
foregoing $50 million requirement is deemed satisfied if such trust or
other entity has aggregate assets which are in excess of $50 million
(excluding the assets of any Plan with respect to which the fiduciary
responsible for making the investment decision on behalf of such group
trust or other entity or any member of the controlled group of
corporations including such fiduciary is the employer maintaining such
Plan or an employee organization whose members are covered by such
Plan). However, the fiduciary responsible for making the investment
decision on behalf of such group trust or other entity --
(i) Has full investment responsibility with respect to Plan assets
invested therein, and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to Plan investment in
the commingled entity, which are in excess of $100 million.
(c) Prior to the execution of a BMA Synthetic GIC, the Plan
fiduciary receives a full and detailed written disclosure of all
material features concerning the BMA Synthetic GIC, including--
(1) A copy of the underlying agreement for the BMA Synthetic GIC
and accompanying application, which stipulate the relevant provisions
of the Contract, the applicable fees, if any, and the rights and
obligations of the parties;
(2) Investment Guidelines defining the manner in which BMA will
manage the assets in the Contractholder Custodial Account;
(3) A copy of the Custodial Agreement between BMA, the Plan
fiduciary and the custodian (the Custodian); and
(4) Copies of the proposed exemption and grant notice with respect
to the exemptive relief provided herein.
(d) Upon the selection by a Plan fiduciary of a BMA Synthetic GIC,
BMA will supply the Plan fiduciary of a Plan [including a Plan that
provides for participant investment selection (the Section 404(c)
Plan)], a summary of the pertinent features of the documents listed
above in paragraphs (c)(1) through (c)(3) of this Section II which the
Plan fiduciary, in its discretion, deems appropriate for distribution
to such participant, to the extent necessary to satisfy the
requirements of section 404(c) of the Act.
(e) Subsequent to a Plan's investment in a BMA Synthetic GIC, the
Plan fiduciary will receive the following ongoing disclosures regarding
such investment:
(1) A periodic report consisting of a Contract Value Record Report,
which specifies the affected Plan's BMA Synthetic GIC Contract Value
Record balance for the prior period, contributions, withdrawals [i.e.,
Scheduled Withdrawals(the Scheduled Withdrawals) and, if applicable,
Unscheduled Withdrawals (the Unscheduled Withdrawals)], interest
earned, and the current period's ending Contract Value Record balance;
(The time periods covered by the Contract Value Record Report will be
selected in advance by the independent Plan fiduciary and may be sent
monthly, quarterly or annually.)
(2) A periodic Market Value Statement, which is supplied by the
Custodian on a quarterly basis, that specifies the prior period's
ending market value for the assets in the Contractholder Custodial
Account, contributions made by the Plan sponsor to the BMA Synthetic
GIC after the initial deposit, Scheduled Withdrawals and, if
applicable, Unscheduled Withdrawals, any fees paid to BMA, investment
income, realized capital gains and/or losses from sales, changes in
unrealized appreciation of assets, the current period's ending market
value and rate of return, and a summary of transactions; and
(3) Upon request from the Custodian (i.e., not more often than
quarterly), a portfolio listing.(The reports referred to in paragraphs
(e)(1)-(e)(3) of this Section II will be made available to the Plan
fiduciary, which, in turn, will provide copies to participants in a
Section 404(c) Plan upon request, to the extent the Plan fiduciary
deems it necessary.)
(f) Each BMA Synthetic GIC specifically provides an objective
method for determining the fair market value of the securities owned by
the Plan pursuant to such GIC.
(g) Each BMA Synthetic GIC has a predefined, fixed maturity date
selected by the Plan fiduciary and agreed to by BMA.
(h) In the event BMA sells assets from a Plan's Contractholder
Custodial Account to BMA's general account or to an affiliate during
the term of the BMA Synthetic GIC or at such GIC's maturity, the
transaction is--
(1) Effected for cash;
(2) The sales price of the security is equal to the fair market
value of such asset as of the close of business on the date of the
sale, as determined by independent sources; and
(3) The Plan incurs no brokerage or transaction costs in connection
with the transaction.
(i) BMA maintains books and records of each BMA Synthetic GIC
transaction for a period of six years. Such books and records are
subject to annual audit by independent, certified public accountants.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on December 17, 1999 at 64 FR 70732.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
John Hancock Mutual Life Insurance Company (John Hancock) Located
in Boston, MA
[Prohibited Transaction Exemption 2000-06; Exemption Application No. D-
10718]
Exemption
Section I. Covered Transactions
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(A) through (D) of the Code, shall not apply to
the (1) receipt of common stock of John Hancock Financial Services,
Inc., the holding company for John Hancock (the Holding Company), or
(2) the receipt of cash or policy credits, by or on behalf of any
eligible policyholder (the Eligible Policyholder) of John Hancock which
is an employee benefit plan (the Plan), subject to applicable
provisions of the Act and/or the Code, other than certain Eligible
Policyholders which are Plans maintained by John Hancock or an
affiliate for their own employees (the John Hancock Plans), in exchange
for such Eligible
[[Page 6225]]
Policyholder's membership interest in John Hancock, in accordance with
the terms of a plan of reorganization (the Plan of Reorganization)
adopted by John Hancock and implemented pursuant to Chapter 175 of the
Massachusetts General Laws.
In addition, the restrictions of section 406(a)(1)(E) and (a)(2)
and section 407(a)(2) of the Act shall not apply to the receipt or
holding, by the John Hancock Plans, of employer securities in the form
of excess Holding Company stock, in accordance with the terms of the
Plan of Reorganization.
This exemption is subject to the conditions set forth below in
Section II.
Section II. General Conditions
(a) The Plan of Reorganization is implemented in accordance with
procedural and substantive safeguards that are imposed under
Massachusetts Insurance Law and is subject to review and supervision by
the Massachusetts Commissioner of Insurance (the Commissioner).
(b) The Commissioner reviews the terms of the options that are
provided to Eligible Policyholders of John Hancock as part of such
Commissioner's review of the Plan of Reorganization, and determines,
after the hearing, whether the Plan of Reorganization conforms to the
requirements of chapter 175, section 19E of the Massachusetts General
Laws and whether the Plan is prejudicial to the Eligible Policyholders
of John Hancock or the insuring public. The Superintendent may object
to the Plan of Reorganization if he or she finds that it is not fair
and equitable to New York Eligible Policyholders.
(c) As part of their determinations, both the Commissioner and the
Superintendent concur on the terms of the Plan of Reorganization.
(d) Each Eligible Policyholder has an opportunity to vote to
approve the Plan of Reorganization after full written disclosure is
given to the Eligible Policyholder by John Hancock.
(e) One or more independent fiduciaries of a Plan that is an
Eligible Policyholder receives Holding Company stock, cash or policy
credits pursuant to the terms of the Plan of Reorganization and neither
John Hancock nor any of its affiliates exercises any discretion or
provides ``investment advice,'' as that term is defined in 29 CFR
2510.3-21(c), with respect to such acquisition.
(f) After each Eligible Policyholder is allocated 17 shares of
Holding Company stock, additional consideration is allocated to
Eligible Policyholders who own participating policies based on
actuarial formulas that take into account each participating policy's
contribution to the surplus of John Hancock which formulas have been
approved by the Commissioner.
(g) With respect to a John Hancock Plan, where the consideration
may be in the form of Holding Company stock an independent Plan
fiduciary--
(1) Determines whether the Plan of Reorganization is in the best
interest of the John Hancock Plans and their participants and
beneficiaries.
(2) Votes at the special meeting of Eligible Policyholders on the
proposal to approve or not to approve the Plan of Reorganization.
(3) If the vote is to approve the Plan or Reorganization,
(i) Decides whether the affected John Hancock Plan should receive
Holding Company stock or cash (should the latter option be available)
and instructs the appropriate Plan trustee to receive such
consideration on behalf of the affected John Hancock Plan;
(ii) Monitors, on behalf of the affected John Hancock Plan, the
acquisition and holding of the shares of any Holding Company stock
received;
(iii) Makes determinations on behalf of the John Hancock Plan with
respect to voting and the continued holding of the shares of Holding
Company stock received by such Plan; and
(iv) Disposes of any Holding Company stock held by the John Hancock
Plan which exceeds the limitation of section 407(a)(2) of the Act as
reasonably as practicable but in no event later than six months year
following the effective date of the demutualization;
(v) Takes all actions that are necessary and appropriate to
safeguard the interests of the John Hancock Plans; and
(vi) Provides the Department with a complete and detailed final
report as it relates to the John Hancock Plans prior to the effective
date of the demutualization.
(h) All Eligible Policyholders that are Plans participate in the
transactions on the same basis within their class groupings as other
Eligible Policyholders that are not Plans.
(i) No Eligible Policyholder pays any brokerage commissions or fees
in connection with their receipt of Holding Company stock or in
connection with the implementation of the commission-free sales and
purchase programs.
(j) All of John Hancock's policyholder obligations remain in force
and are not affected by the Plan of Reorganization.
Section III. Definitions
For purposes of this exemption:
(a) The term ``John Hancock'' means The John Hancock Mutual Life
Insurance Company and any affiliate of John Hancock as defined in
paragraph (b) of this Section III.
(b) An ``affiliate'' of John Hancock includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with John Hancock. (For purposes of this paragraph, the term
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an
officer, director or a 5 percent partner or owner.
(c) The term ``Eligible Policyholder'' means a policyholder whose
name appears on the conversion date on John Hancock's records as the
owner of a policy under which there is a right to vote and which, on
both the December 31 immediately preceding the conversion date an the
date the John Hancock's Board of Directors first votes to convert to
stock form, is in full force for its full basic benefits with no unpaid
premiums or consideration at the expiration of any applicable grace
period, or which is being continued under a nonforfeiture benefit and
continues to be eligible for participation in John Hancock's annual
distribution of divisible surplus.
(d) The term ``policy credit'' means (i) for an individual or joint
participating whole life insurance policy, the crediting of paid-up
additions which will increase the cash value and death benefit of the
policy; and (ii) for all other individual or joint life policies and
annuities, (x) if the policy or contract has a defined account value,
an increase in the account value, or, (y) if the policy or contract
does not have a defined account value, the crediting of dividends left
on deposit under the policy or contract.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption(the Notice) that was published on
October 22, 1999 at 64 FR 57136.
Written Comments
The Department received 45 written comments with respect to the
proposed exemption. Forty-four of the comments were submitted by
Eligible Policyholders and one comment was submitted by John Hancock.
Of the Eligible Policyholder comments received, fourteen commenters
said they were in favor of the exemption and urged the Department to
approve it. Six commenters requested information that
[[Page 6226]]
was pertinent to their insurance policies, but was not germane to the
exemption request. Twenty-four commenters expressed their objection to
the exemption for various reasons, which could be categorized in the
following areas: (a) the effect of John Hancock's demutalization on
policyholder benefits; (b) risks inherent in the demutualization; (c)
the lack of benefits to Plan participants if the exemption is granted;
and (d) whether the formula utilized by John Hancock to determine the
amount of consideration to be allocated to Eligible Policyholders was
adequate.
John Hancock's comment requested clarification to the Notice. The
comment also sought to expand upon the description of the transactions
described therein.
Discussed below are the substantive comments that were submitted by
the Eligible Policyholders as well as John Hancock's responses to the
issues raised in comment letters. Also discussed is John Hancock's
comment and the Department's responses to specific areas of technical
clarification in the operative language and definitions of the Notice
and the Summary of Facts and Representations (the Summary).
Eligible Policyholder Comments
Sixteen commenters questioned the effect of John Hancock's
demutalization on a policyholder's benefits or tax-exempt status. In
response these comments, John Hancock represents that the concerns of
the policyholders have been addressed in the Policyholder Information
Statement which was sent to all Eligible Policyholders. According to
John Hancock, the document clearly states that the conversion of the
company to a stock company will not reduce the benefits, values,
guarantees or dividend rights of any policy, nor adversely affect any
grandfathering or special tax status of any policy.
Also in connection with the effect of the demutualization on
existing policyholder benefits, another commenter asserted that two
representations made by John Hancock in the proposed exemption were
false. First, the commenter noted that on page 57139 of the Summary,
the second para graph of Representation 6 states that--
John Hancock believes these consequences of the conversion will
benefit all of its policyholders. John Hancock further explains that
its insurance policies will remain in force and policyholders will
be entitled to receive the benefits under their policies and
contracts to which they would have been entitled if the Plan of
Reorganization had not been adopted.
Second, the commenter noted that on page 57141 of the Summary,
paragraph (h) of Representation 13 states that--
The Plan of Reorganization will not change premiums or reduce policy
benefits, values, guarantees or other policy obligations of John
Hancock to its policyholders and contractholders.
The commenter believed that, as a result of the demutualization,
John Hancock's proposed changes to products and services offered under
its health insurance program would constitute an unlawful termination
of its group insurance policy which was not authorized under such
policy. The commenter also argued that these material breaches would
have severe consequences and an adverse effect upon its organization.
In response to this comment, John Hancock explains that it sold its
group benefit operations to the Unicare Life and Health Insurance
Company (Unicare) and the sale was structured as a reinsurance
transaction so that John Hancock would still be the insurer of record
until the next renewal of the contract. John Hancock explains that the
correspondence between Unicare and the commenter stems from an attempt
by Unicare to modify its product line with respect to its association
business (i.e., business sold to associations on behalf of many
employers within the association). John Hancock acknowledges that
Unicare is attempting to standardize its product mix for this type of
business for the next contract cycle. In any event, John Hancock states
that ongoing discussions between Unicare and the commenter do not
relate to the demutualization and that John Hancock's statement in the
Plan of Reorganization and Policyholder Information Statement regarding
no changes to existing contracts as a result of the demutualization are
entirely accurate. Further, John Hancock points out that none of the
changes to the commenter's policy, if implemented, would be as a result
of, or caused by the Plan of Reorganization.
Four commenters described the increased risk that would be caused
by John Hancock's conversion to a stock company. However, in response
to these commenters, John Hancock asserts that the policyholders lacked
an understanding of the transaction and had every right to be heard at
the hearing that was held on November 17, 1999.
Still another commenter suggested that there would be ``no possible
benefit to Plan participants'' if the exemption is granted. In response
to this commenter, John Hancock asserts that the policyholder's notion
is incorrect inasmuch as Eligible Policyholders that are Plans will
receive Holding Company stock, cash or policy credits in exchange for
their illiquid membership interests in John Hancock.
Finally, a commenter expressed concern about the adequacy of the
formula utilized by John Hancock to determine the amount of
consideration to be allocated to Eligible Policyholders. Based on prior
experience with another insurance company demutualization, the
commenter questioned John Hancock's characterization of certain
investment contracts as ``nonparticipating'' as well as the resulting
allocation formula.
In response to this comment, John Hancock asserts that only
``participating'' contractholders will be eligible for both the fixed
and variable components of compensation, with the variable component
being dependent on the policy's contribution to the surplus of the
insurer, both historically and prospectively. John Hancock notes that
the fixed component will be based upon a policy's voting interest while
the variable component will be given in respect of a policy's
contribution to the insurer's surplus. John Hancock further notes that
only participating policies will have rights to divisible surplus and
these views are consistent with the approach taken in insurance company
demutualizations that have occurred in the United States over the past
decade.
John Hancock explains that while the commenter may represent Plans
that have non-participating policies with John Hancock, these Plans may
have contracts with another insurer that are deemed participating.
Although many of the features of the contracts may be similar, John
Hancock explains that the difference in the participating status of the
contracts is paramount for purposes of determining eligibility for the
fixed component.
John Hancock's Comments
1. Insurance Regulator Roles. On page 57136 of the Notice,
paragraphs (b) and (c) of the General Conditions describe the
respective roles of the Massachusetts Insurance Commissioner and the
New York Superintendent of Insurance with respect to John Hancock's
Plan of Reorganization. John Hancock states that these paragraphs are
not entirely clear. In the case of Massachusetts, John Hancock points
out that the Commissioner must determine, after the hearing, whether
the Plan of Reorganization conforms to the requirements of chapter 175,
section 19E of the Massachusetts General Laws and whether the Plan is
prejudicial to
[[Page 6227]]
the policyholders of John Hancock or the insuring public. John Hancock
also points out that the Superintendent may object to the Plan of
Reorganization if he finds that it is not fair and equitable to New
York Eligible Policyholders.
Paragraph (c) of Section II states that both the Commissioner and
the Superintendent must concur on the terms of the Plan of
Reorganization. However, John Hancock states that while it is true that
both regulators must be satisfied that the Plan of Reorganization meets
the appropriate statutory standard, there is no formal process in which
they ``concur on the terms of the Plan of Reorganization.''
In response to these comments, the Department has revised
paragraphs (b) and (c) of Section II to read as follows:
(b) The Commissioner reviews the terms of the options that are
provided to Eligible Policyholders of John Hancock as part of such
Commissioner's review of the Plan of Reorganization, and determines,
after the hearing, whether the Plan of Reorganization conforms to
the requirements of chapter 175, section 19E of the Massachusetts
General Laws and whether the Plan is prejudicial to the Eligible
Policyholders of John Hancock or the insuring public. The
Superintendent may object to the Plan of Reorganization if he or she
finds that it is not fair and equitable to New York Eligible
Policyholders.
(c) As part of their determinations, both the Commissioner and
the Superintendent concur on the terms of the Plan of
Reorganization.
John Hancock also wishes to acknowledge that there are differences
between the statutory language describing the Commissioner's standard
of review and those of the Superintendent. As noted above, the
Massachusetts standard requires the Commissioner to find whether the
Reorganization Plan is ``prejudicial to the Eligible Policyholders of
John Hancock or the insuring public.'' John Hancock believes the
Massachusetts standard is broader because it focuses not only on ``the
eligible policyholders'' of the demutualizing company but also on ``the
insuring public.'' In contrast, John Hancock explains that the New York
standard requires the Superintendent to find that the transaction is
``fair and equitable'' to New York policyholders of the insurer and
can, therefore, be viewed somewhat more narrowly than the Massachusetts
standard.
John Hancock represents that it sees no substantive difference
between the ``not prejudicial'' concept and the ``fair and equitable
concept.'' In John Hancock's view, the phrase ``not prejudicial''
implies ``fairness.'' From John Hancock's past experience, it believes
the Commissioner also shares this view.
2. John Hancock Plans. On pages 57136 and 57141 of the Notice,
paragraph (g)(3)(i) of Section II of the General Conditions and
Representation 11 of the Summary, indicate that an independent
fiduciary ``receives such consideration on behalf of the affected John
Hancock Plan.'' John Hancock wishes to clarify that while U.S. Trust
Company, N.A. (U.S. Trust), the independent fiduciary for the John
Hancock Plans, will make the decision as to what each Plan receives,
the consideration, itself, is received by the Plan trustee based on the
instructions of the independent fiduciary.
The Department concurs with this comment and has revised paragraph
(g)(3)(i) of Section II and the second sentence of Representation 11 by
adding the phrase ``* * * and instructs the appropriate Plan trustee
to receive such consideration on behalf of the affected John Hancock
Plan'' after the parenthetical.
3. Definition of ``Policy Credit.'' On page 57137 of the Notice, in
Section III(d) of the Definitions, the term ``policy credit'' is
defined as follows:
* * * (1) for an individual or joint ordinary life insurance
policy, an increase to the paid-up dividend addition value, and (2)
for all other individual or joint life policies and annuities, (i)
if the policy or contract has a defined account value, an increase
in the account value, or
(ii) if the policy or contract does not have a defined account
value, an increase to the dividend accumulation fund.
John Hancock concedes that this definition is generally correct.
However, it does not correspond exactly with the definition of the term
in John Hancock's final Plan of Reorganization which defines the term
as follows:
``Policy Credit'' means (i) for an individual or joint participating
whole life insurance policy, the crediting of paid-up additions
which will increase the cash value and death benefit of the policy,
and (ii) for all other individual or joint life policies and
annuities, (x) if the policy or contract has a defined account
value, an increase in the account value, or, (y) if the policy or
contract does not have a defined account value, the crediting of
dividends left on deposit under the policy or contract.
For the sake of conformity with John Hancock's final Plan of
Reorganization, the Department has revised the definition of the term
``policy credit,'' accordingly.
4. Holding Company Formation. On page 57138 of the Notice, in
Representation 4 of the Summary, the third sentence of paragraph three
states that the Holding Company will own 100 percent of two new holding
companies being established to own existing subsidiaries of John
Hancock and most other foreign insurance subsidiaries. John Hancock
states that this sentence should be deleted as this aspect of its
reorganization is no longer contemplated. In response to this change,
the Department has deleted this sentence from the Summary.
5. Date of Demutualization. On page 57139 of the Notice, in
Representation 5 of the Summary, the second sentence of paragraph (b)
states that John Hancock's expected date of demutualization will occur
during early February 2000. John Hancock wishes to clarify that the
actual date of its demutualization will occur on February 1, 2000.
6. Risk-Based Capital Ratio Formula. On page 57139 of the Notice,
in Representation 5 of the Summary, paragraph (c) states, in part, that
the Holding Company will contribute cash raised in the initial public
offering to John Hancock in an amount at least equal to the amount
required for John Hancock to maintain a risk-based capital ratio of not
less than 200 percent following the payment and crediting of cash and
establishment of reserves for policy credits called for by the Plan of
Reorganization. John Hancock represents that the 200 percent risk-based
capital ratio formula was revised at the request of the Commissioner
during her informal review of the draft Plan of Reorganization and was
subsequently incorporated into the final Plan of Reorganization. John
Hancock explains that the Commissioner required the change to a more
complicated formula in order to maximize the amount of IPO proceeds
that would be available to be contributed to the insurer and used to
fund distributions of cash to policyholders who do not elect Holding
Company stock. Because its risk-based capital ratio is in excess of 200
percent, John Hancock states that the old formula would have permitted
more IPO proceeds to be retained by the Holding Company.
Therefore, in accordance with the formula revision, John Hancock
requests that Representation 5(c) be modified to read as follows:
(c) Contribution to the Capital of John Hancock. Following the
transactions described above, the Holding Company will contribute
cash raised in the IPO (after the payment of transaction expenses
and the retention of a certain amount by the Holding Company, as
permitted under both the old and the new formulas) to John Hancock,
which shall apply substantially all such
[[Page 6228]]
proceeds to fund cash and policy credit consideration to
policyholders.
The Department concurs with this change and has made the requested
modification to the Summary. The Department also wishes to note that
while both formulas would allow the Holding Company to retain a certain
amount of cash raised in the IPO, under the new formula, more cash will
be contributed by the Holding Company to John Hancock.
7. Time Frame For Eligible Policyholder Submission of Election
Form. On page 57140 of the Notice, the first paragraph of
Representation 10 of the Summary states, in pertinent part, that an
Eligible Policyholder will be entitled to receive Holding Company stock
if such Policyholder affirmatively elects, on a form provided to such
Eligible Policyholder that has been properly completed and received by
John Hancock prior to the date of the special policyholder meeting, a
preference to receive stock. John Hancock notes that the time within
which an Eligible Policyholder may submit the election form, indicating
a preference to receive shares of Holding Company stock, has been
extended until December 31, 1999.
8. Role of U.S. Trust. On pages 57136 and 57141 of the Notice,
Section II(g)(3)(ii) and (iii) and Representation 11 of the Summary
describe the role of U.S. Trust, the independent fiduciary for the John
Hancock Plans in connection with the demutualization. Specifically,
U.S. Trust will vote and make elections (i.e., stock or cash) which are
available to the John Hancock Plans under the Plan of Reorganization.
However, once the demutualization is completed, John Hancock represents
that U.S. Trust will have an ongoing role only with respect to those
John Hancock Plans which continue to hold Holding Company stock that is
in excess of the limitations of section 407(a) of the Act. Thus, once
the stock holdings of an affected John Hancock Plan are brought within
the 10 percent limit, which must occur within six months of the
effective date of the demutualization, John Hancock explains that the
retention of U.S. Trust will no longer be required.
The Department concurs with John Hancock's understanding with
respect to the retention of U.S. Trust following the demutualization.
For further information regarding the comments and other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-10718) the
Department is maintaining in this case. The complete application file,
as well as all supplemental submissions received by the Department, are
made available for public inspection in the Public Documents Room of
the Pension and Welfare Benefits Administration, Room N-5638, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210.
Accordingly, after giving full consideration to the entire record,
including the written comments, the Department has decided to grant the
exemption subject to the modifications and clarifications described
above.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Cassano's Inc. 401(k) Plan and Trust (the Plan) Located in Dayton,
Ohio
[Prohibited Transaction Exemption 2000-07; Exemption Application Number
D-10734]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the sale (the Sale) of an improved parcel of real
property (the Property) by the Plan to Cassano's, Inc. (Cassano's), a
party in interest and disqualified person with respect to the Plan,
provided that the following conditions are met:
(a) The Sale is a one-time transaction for cash;
(b) The terms and conditions of the Sale are at least as favorable
to the Plan as those obtainable in an arm's length transaction with an
unrelated party;
(c) The Plan receives the greater of $155,500 or the fair market
value of the Property as of the date of the Sale;
(d) The Plan is not required to pay any commissions, costs or other
expenses in connection with the Sale; and
(e) Cassano's files Form 5330 with the Internal Revenue Service
(the Service) and pays certain excise taxes with respect to the past
prohibited leasing of the Property within 90 days of the date this
notice granting this exemption is published in the Federal Register.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
notice of proposed exemption published on November 9, 1999 at 64 FR
61134
FOR FURTHER INFORMATION CONTACT: Mr. J. Martin Jara, telephone (202)
219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 3rd day of Febraury, 2000.
Ivan Strasfeld,
Director of Exemption Determination, Pension and Welfare
BenefitsAdministration, U.S. Department of Labor.
[FR Doc. 00-2858 Filed 2-7-00; 8:45 am]
BILLING CODE 4510-29-P