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Secretary of Labor Thomas E. Perez
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. [Notices] [02/08/2000]

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