EBSA (Formerly PWBA) Federal Register Notice
Grant of Individual Exemptions; Metropolitan Life [03/13/2000]
[PDF Version]
Volume 65, Number 49, Page 13326-13335
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2000-11; Exemption Application No. D-
10721, et al.]
Grant of Individual Exemptions; Metropolitan Life
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
-----------------------------------------------------------------------
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.
Metropolitan Life Insurance Company (MetLife), Located in New York,
NY
[Prohibited Transaction Exemption 2000-11; Exemption Application No. D-
10721]
Exemption
Section I. Exemptions Involving the Demutualization of Metlife and the
Excess Holding of Consideration by Plans Sponsored by Metlife and its
Affiliates (the MetLife Plans)
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 receipt, by any eligible policyholder (the Eligible Policyholder)
of MetLife that is an employee benefit plan (the Plan), subject to
applicable provisions of the Act and/or the Code, including any
Eligible Policyholder that is a Plan covering employees of MetLife or
its affiliates, of an interest (the Interest) in a trust (the Trust),
whose corpus consists of common stock (the Common Stock) issued by
MetLife, Inc. (the Holding Company), the parent of MetLife; or (2) the
receipt of cash or policy credits by such Plans,\1\ in exchange for
such Eligible Policyholder's membership interest in MetLife, pursuant
to a plan of conversion (the Plan of Reorganization) adopted by MetLife
and implemented in accordance with section 7312 of the New York
Insurance Law.
---------------------------------------------------------------------------
\1\ Unless otherwise noted, the terms ``Plan'' and ``MetLife
Plan'' are referred to collectively as the ``Plans.''
---------------------------------------------------------------------------
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 and
holding, by a MetLife Plan, of Trust Interests, whose fair market value
exceeds 10 percent of the value of the total assets held by such Plan.
The exemptions that are described above are subject to the
following conditions:
(a) The Plan of Reorganization is implemented in accordance with
procedural and substantive safeguards that are imposed under New York
Insurance Law and is subject to review and approval by the New York
Superintendent of Insurance (the Superintendent). The Superintendent
reviews the terms of the options that are provided to Eligible
Policyholders of MetLife as part of such Superintendent's review of the
Plan of Reorganization, and the Superintendent only approves the Plan
of Reorganization following a determination that the Plan is fair and
equitable to all Eligible Policyholders and is not detrimental to the
public.
(b) Each Eligible Policyholder has an opportunity to vote at a
special meeting to approve the Plan of Reorganization after receiving
full written disclosure from MetLife.
(c) One or more independent fiduciaries of a Plan (the Independent
Fiduciary) that is an Eligible Policyholder receives Trust Interests,
cash or policy credits pursuant to the terms of the Plan of
Reorganization and neither MetLife nor any of its affiliates exercises
any discretion or provides ``investment advice,'' within the meaning of
29 CFR 2510.3-21(c) with respect to such acquisition.
(d) In the case of a MetLife Plan, the Independent Fiduciary--
(1) Votes at the special meeting of Eligible Policyholders to
approve the Plan of Reorganization;
(2) Makes any election, to the extent available under the Plan of
Reorganization, to receive Trust Interests or cash on behalf of the
MetLife Plan;
(3) Monitors, on behalf of the MetLife Plan, the acquisition and
holding of any Trust Interests received;
[[Page 13327]]
(4) Makes determinations on behalf of the MetLife Plan with respect
to the voting and the continued holding of Trust Interests by such
Plan.
(5) Withdraws shares of Holding Company Common Stock that are held
in Trust which are equivalent to Trust Interests allocated to a MetLife
Plan and disposes of such Trust Interests:
(i) Not exceeding the limits of section 407(a) of the Act in a
prudent manner.
(ii) Exceeding the limits of section 407(a) of the Act within six
months of the initial public offering (the IPO); and
(6) Provides the Department with a complete and detailed final
report as it relates to the MetLife Plans prior to the effective date
of the demutualization.
(e) Each Eligible Policyholder entitled to receive Trust Interests
is allocated at least ten shares of Holding Company Common Stock and
additional consideration may be 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
MetLife, which formulas have been reviewed by the Superintendent.
(f) All Eligible Policyholders that are Plans participate in the
demutualization transaction on the same basis within their class
groupings as other Eligible Policyholders that are not Plans.
(g) No Eligible Policyholder pays any brokerage commissions or fees
in connection with the receipt of consideration.
(h) All of MetLife's policyholder obligations remain in force and
are not affected by the Plan of Reorganization.
(i) The terms of the transactions are at least as favorable to the
Plans as an arm's length transaction with an unrelated party.
Section II. Exemptions Involving Sales or Withdrawals Occurring in
Connection With the Operation or Termination of the Trust
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) sale by a Plan to the Holding Company of Holding Company Common
Stock, which is held in the Trust for the benefit of such participating
Plan and is evidenced by Trust Interests, following the effective date
of the demutualization or upon the termination of the Trust; and (2)
the withdrawal by a Plan of Holding Company Common Stock, as evidenced
by Trust Interests, beginning on the first anniversary of the effective
date of the demutualization until the termination of the Trust.
The exemptions are subject to the following conditions:
(a) The decision by a Plan to arrange for the sale of Holding
Company Common Stock to the Holding Company or to withdraw Holding
Company Common Stock is made by a Plan fiduciary which is independent
of MetLife and its affiliates.
(b) No Plan pays any fees or commissions in connection with either
transaction.
(c) The terms of the transactions are at least as favorable to the
Plan as those obtainable in an arm's length transaction with an
unrelated party.
(d) Any sale of shares of Holding Company Common Stock held in the
Trust for the benefit of a Plan to the Holding Company is at a price
reflecting the fair market value of the Common Stock as determined by
averaging the high and low trading prices as reported on the New York
Stock Exchange on the day of sale, except that if such sale is pursuant
to the termination of the Trust, such fair market value is determined
as the average of the closing price for a share of such Holding Company
Common Stock for the twenty consecutive trading days ending on the
third calendar day immediately prior to the date of the sale.
Section III. Definitions
For purposes of this exemption:
(a) The term ``MetLife'' means Metropolitan Life Insurance Company
and any affiliate of MetLife as defined in paragraph (b) of this
Section III.
(b) An ``affiliate'' of MetLife includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with MetLife. (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.); and
(2) Any officer, director or partner in such person.
(c) The term ``Eligible Policyholder'' means a policyholder whose
name appears on MetLife's records as the owner of a policy on the
adoption date of MetLife's Plan of Reorganization by MetLife's Board of
Directors and, which is in full force for its full basic benefits and
has not matured by death or otherwise been surrendered or terminated.
(d) The term ``policy credit'' means (1) an increase in
accumulation value, to which the Company will apply no sales, surrender
charges, or that will be further increased in value to offset any of
these charges, under a policy that is a deferred annuity; (2) an
increase in the amount of the payments distributed under a policy that
is in the course of annuity payments; (3) additional insurance or
dividends with interest, as appropriate (depending upon whether the
additional insurance option or the dividends with interest option has
been selected with respect to the underlying policy, provided that
dividends with interest will apply where an option other than
additional insurance or dividends with interest has been selected),
under a policy that is a life insurance policy; or (4) an increase in
the retired lives reserve, under a policy that is a life or health
insurance funding account or a guaranteed life insurance funding
account.
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
November 24, 1999 at 64 FR 66201.
Written Comments
The Department received 25 written comments with respect to the
Notice. Twenty-four comments were submitted by Eligible Policyholders
of MetLife and one comment was submitted by MetLife.
Of the Eligible Policyholder comments received, one commenter was
in favor of the exemption and urged the Department to grant it. Six
commenters requested general information that was not relevant to the
exemption and their comments were, in turn, forwarded to appropriate
personnel within MetLife for response.
Seventeen commenters said they were opposed to the exemption for
various reasons. These commenters questioned whether the exemption
would have an adverse impact upon their benefits or they expressed
general dissatisfaction with the demutualization concept or with the
insurer. Because many of the comment letters presented similar issues,
particularly the effect of the demutualization on policyholder
benefits, the Department forwarded a representative sample to MetLife
for response.
In its comment, MetLife requested clarification to the Notice. The
comment also sought to expand on the description of the transactions
described in the Notice and the Summary of Facts and Representations
(the Summary).
Discussed below are the substantive comments that were submitted by
the Eligible Policyholders as well as MetLife's responses to the
comment letters. Also discussed is MetLife's comment and the
Department's responses to specific areas of technical
[[Page 13328]]
clarification in the Notice and the Summary.
Eligible Policyholder Comments
As noted above, a number of commenters said they were opposed to
the exemption because they believed it might affect their policyholder
benefits adversely or, as one commenter stated, ``relieve those in
charge of the plan from the obligations of ERISA.''
In response, MetLife asserts that the comments have nothing to do
with the merits of the exemption. Instead, MetLife explains that the
commenters had an ample opportunity to express their concerns at the
policyholder hearing that was held on January 24, 2000. In addition,
MetLife states that the concerns of these policyholders have been
addressed in the ``Policyholder Information Booklet, Part I,'' which
was mailed to all Eligible Policyholders. According to MetLife, in that
booklet, it is clearly stated that ``Your policy benefits, values,
guarantees and dividend eligibility will not be reduced, and your
policy premiums will not be increased, in any way, due to the
demutualization.''
MetLife's Comments
1. Duties of the Independent Fiduciary. On page 66202 of the
Notice, Section I(d) sets forth the duties of State Street Bank and
Trust Company (State Street), the independent fiduciary for the MetLife
Plans. MetLife states that it is its understanding that State Street's
duty to continue to monitor a MetLife Plan's holding of Trust Interests
or Holding Company Common Stock will exist only so long as the MetLife
Plan's holding is in excess of the 10 percent limitation in section
407(a) of the Act. Once a MetLife Plan's holdings have been reduced to
below this limit, which must occur within six months of the initial
public offering (the IPO), MetLife notes that State Street's oversight
activities will cease.
The Department wishes to confirm MetLife's understanding of the
role of State Street as independent fiduciary for the MetLife Plans.
2. Eligible Policyholder Consideration. On page 66202 of the
Notice, paragraph (e) of Section I provides for the allocation of
Holding Company Common Stock to Eligible Policyholders among the fixed
and variable components. However, MetLife represents that it would be
more accurate to reword this condition as follows since not all
policyholders who receive the fixed component of compensation will also
receive the variable component:
(e) Each Eligible Policyholder entitled to receive Trust
Interests is allocated at least ten shares of Holding Company Common
Stock, and additional consideration may be 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 MetLife, which formulas have been
reviewed by the Superintendent.
MetLife points out that the same comment is applicable to
Representation 9(d) of the Summary.
In response to this clarification, the Department has made the
requested revisions to the Notice and the Summary.
3. MetLife Definition. On page 66202 of the Notice, Section III(a)
in part, defines the term ``MetLife'' as ``The MetLife Insurance
Company.'' However, MetLife requests that the article ``The,'' be
deleted from the term and in response to this comment, the Department
has made the requested revision.
4. Affiliate Definition. On page 66202 of the Notice, paragraph (b)
defines the term ``affiliate'' of MetLife to include--
(1) Any person directly or indirectly through one or more
intermediaries, controlling controlled by, or under common control
with MetLife; (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.
While Metlife concedes that subparagraphs (1) and (2) of the definition
are acceptable, that portion of subparagraph (3) which includes an
entity in which MetLife holds an interest of 5 percent or more is too
broad. In preparing the list of MetLife Plans, MetLife states that it
included Plans of entities in which it owned a 50 percent or greater
interest. If it were required to use the 5 percent threshold, MetLife
states that the list of Plans would have to include Plans of companies
in which it holds a minority (but greater than 5 percent) interest. In
many cases, MetLife represents that it has no knowledge of these Plans,
and as a minority owner, has no control over them. Accordingly, MetLife
requests that the Department delete subparagraph (3) from the
definition. MetLife notes that subparagraph (1) would still pick up the
majority-owned subsidiaries whose Plans are already included in the
schedule of the MetLife Plans supplied to the Department.
The Department concurs with this comment and has made the requested
modification.
5. Eligible Policyholder Definition. On page 66202 of the Notice,
paragraph (c) of Section III defines the term ``Eligible Policyholder''
as --
* * * a policyholder whose name appears on MetLife's records as
the owner of a policy on the adoption date of MetLife's Plan of
Reorganization by MetLife's Board of Directors, which is in full
force for its full basic benefits and has not matured by death or
otherwise been surrendered or terminated and which remains in force
on the effective date of MetLife's demutualization.
MetLife notes that the definition ends with the phrase ``and which
remains in force on the effective date of MetLife's demutualization.''
However, MetLife wishes to clarify that New York law was recently
amended to eliminate the requirement that the policy remain in force
until the effective date to be eligible. Therefore, MetLife states that
its Plan of Reorganization now provides that a policy which was in
force on the adoption date (September 28, 1999) will be eligible even
if it does not remain in force until the effective date.
In response, the Department has considered this clarification and
has made the requested modification to the Notice.
6. Policy Credit Definition. On page 66202 of the Notice, paragraph
(d) of Section III defines the term ``policy credit'' as --
* * * (1) a dividend deposit or dividend addition; (2) an
increase in accumulation value (to which no sales or surrender or
similar charges shall be applied); (3) additional coverage or
benefits; (4) an extension of the expiry date; or (5) a reduction in
premium payments.
MetLife represents that the definition of the term ``policy credit'' in
the Notice is a somewhat simplified version. Therefore, it requests
that the term as defined in the Plan of Reorganization, which is stated
as follows, be substituted:
* * * (1) an increase in accumulation value, to which the
Company will apply no sales, surrender charges, or that will be
further increased in value to offset any of these charges, under a
policy that is a deferred annuity; (2) an increase in the amount of
the payments distributed under a policy that is in the course of
annuity payments; (3) additional insurance or dividends with
interest, as appropriate (depending upon whether the additional
insurance option or the dividends with interest option has been
selected with respect to the underlying policy, provided that
dividends with interest will apply where an option
[[Page 13329]]
other than additional insurance or dividends with interest has been
selected), under a policy that is a life insurance policy; or (4) an
increase in the retired lives reserve,\2\ under a policy that is a
life or health insurance funding account or a guaranteed life
insurance funding account.
\2\ MetLife represents that the phrase ``retired lives reserve''
refers to a reserve which is part of a group term life or health
insurance policy by which monies are set aside under the policy for
the payment of future premiums for eligible retirees covered under
the policy.
In response, the Department has revised the definition of the term
``policy credit'' to reflect the version set forth in MetLife's final
Plan of Reorganization.
7. Trust Corpus. On page 66203 of the Notice, the first sentence of
Representation 5 of the Summary provides, in part, that MetLife will
establish the Trust ``to hold shares of Holding Company Common Stock
that are received by millions of policyholders under its Plan of
Reorganization.'' For the sake of accuracy, MetLife states that this
clause should be revised to state that the Trust will hold shares of
Holding Company Common Stock that are allocated to policyholders since
the policyholders will not actually ``receive'' the shares unless and
until they are withdrawn from the Trust.
The Department concurs with this comment and has revised the first
sentence of Representation 5.
8. Miscellaneous Changes/Clarifications. On page 66204 of the
Notice, in the third paragraph of Representation 7 of the Summary,
MetLife points out that the proper spelling of the Superintendent's
actuarial adviser is ``Milliman & Robertson'' and not ``Miliman &
Robertson.'' Similarly, on page 66204 of the Notice, in Representation
8 of the Summary, the parenthetical in the first sentence of the fourth
paragraph should read ``(approximately 11.1 million in the case of
MetLife) instead of ``(approximately 16 million in the case of
MetLife).'' Finally, on page 66205 of the Notice, in Representation 9,
Footnote 5 of the Summary states that the special policyholder meeting
will be held ``in early January 2000.'' However, MetLife wishes to
clarify that the public hearing occurred on January 24, 2000 and the
policyholder vote took place on February 7, 2000.
The Department notes these clarifications.
9. Canadian Policies. On page 66205 of the Notice, in
Representation 10 of the Summary, Footnote 6 describes the status of
certain former Canadian policyholders of MetLife. To clarify the status
of these policies, MetLife states that in July 1998, it sold a
substantial portion of its Canadian operations to Clarica Life
Insurance Company (Clarica Life). As part of that sale, MetLife
explains that a large block of policies in effect with MetLife in
Canada were transferred to Clarica Life and the holders of the
transferred Canadian policies became policyholders of Clarica Life.
MetLife indicates that the transferred policyholders are no longer
MetLife policyholders and, therefore, are not entitled to compensation
under the Plan of Reorganization.
However, as a result of a commitment made in connection with
obtaining Canadian regulatory approval of that sale, if it
demutualizes, MetLife states that its Canadian branch will make cash
payments to those who are, or are deemed to be, holders of these
transferred Canadian policies. MetLife notes that the payments will be
determined in a manner that is consistent with the treatment of, and
will be fair and equitable to, Eligible Policyholders. Further, MetLife
states that the process of the IPO and any Other Capital Raising
Transactions must be sufficient to reimburse MetLife for those
payments.
Also in Representation 10, MetLife states that there is language
describing how the shares of policyholders who elect to be cashed out
will be sold to the Holding Company and the proceeds distributed to
those policyholders. MetLife states that it is now contemplated that no
shares of Holding Company Common Stock will be issued with respect to
such policyholders. Instead, ``cash for cash-outs'' will be funded by
the IPO or ``Other Capital Raising Transactions,'' a term defined in
the Plan of Reorganization. MetLife adds that the Holding Company will
always purchase Holding Company Common Stock at its discretion and it
will not purchase such shares to provide cash for cash-outs. Instead,
cash for cash-outs will be raised through the IPO or Other Capital
Raising Transactions.
Further, the first paragraph of Representation 10 lists those
categories of policyholders entitled to receive consideration in the
form of cash. However, MetLife wishes to clarify that aside from the
listed categories, the following category of policyholders is also
entitled to receive cash:
Each group Eligible Policyholder that (a) is an owner of a policy
that is an individual retirement annuity within the meaning of
section 408 or 408A of the Code or a tax-sheltered annuity within
the meaning of section 403(b) of the Code, and (b) has affirmatively
made an election to receive cash in lieu of Trust Interests on a
form approved by the Superintendent that has been provided to such
Eligible Policyholder pursuant to Section 5.5(b) (of the Plan of
Reorganization) and has been properly completed and received by
MetLife prior to the date set by the MetLife, but only with respect
to such policy.
Additionally, in Representation 10, MetLife requests that the
description of the categories of policies which will receive
compensation in the form of policy credits be revised to more
accurately read as follows:
* * * Further, MetLife will allocate policy credits to (a) each
owner of a policy this is an individual retirement annuity within
the meaning of section 408A of the Code or a tax-sheltered annuity
within the meaning of section 403(b) of the Code; (b) each owner of
a policy that is an individual annuity contract that has been issued
pursuant to a Plan qualified under section 401(a) or 403(a) of the
Code directly to the Plan participant; (c) each owner of a policy
that is an individual life insurance policy that has been issued
pursuant to a Plan qualified under section 401(a) or 403(a) of the
Code directly to the Plan participant; and (d) each owner of a
policy that is a life or health insurance funding account or
guaranteed life insurance funding account.
Finally, in Representation 10, Footnote 6 describes the possible
limits on cash compensation. MetLife requests that the second bullet be
revised to read as follows:
<bullet> Each group Eligible Policyholder that elects to receive
cash and is allocated not more than 25,000 shares will receive
compensation in the form of cash.
Immediately following this bullet, MetLife also requests that a third
bullet be added which would read:
<bullet> Each group Eligible Policyholder that elects to receive
cash and is allocated more than 25,000 shares will receive
compensation in the form of--
The Department acknowledges these comments and has made the
requested revisions.
10. Holding Company Common Stock Held in the Trust. On page 66206
of the Notice, the third sentence in the second paragraph of
Representation 11 states, in pertinent part, that ``shares allocated to
the Trust Beneficiary will continue to be held in the Trust until such
Trust Beneficiary decides to withdraw allocable shares of Holding
Company Common Stock for sale.'' MetLife wishes to emphasize that after
one year from the effective date of the demutualization, shares may be
withdrawn for any reason.
Also in Representation 11, Footnote 8 refers to Section 3.4(b) of
the draft Trust Agreement. MetLife states that the
[[Page 13330]]
reference should be to Section 4.2 of the Trust Agreement which governs
the transfer of Trust Interests.
The Department notes these changes.
11. The Purchase and Sale Program. On page 66206 of the Notice,
Representation 12 of the Summary describes the Purchase and Sale
Program which will be established by the Holding Company following the
completion of the IPO for each beneficiary of the Trust (the Trust
Beneficiary). MetLife wishes to modify the fourth sentence in the
second bullet point to read ``Following any partial withdrawal for
sale, the Trust Beneficiary must still hold at least 100 Trust
Interests.''
MetLife also notes that purchases under the Purchase and Sale
Program will not begin until the first trading day following the 90th
day after the effective date of the Plan of Reorganization, and that
MetLife expects that sales will not begin until approximately 30 days
after the effective date.
Finally, in the third sentence of the third full paragraph of
Representation 12 the parenthetical reads ``(Accordingly, the Trust
Beneficiary will receive the same consideration for its shares whether
they are purchased by the Holding Company or by an unrelated party on
the open market.)'' MetLife wishes to point out that this will not be
the case for all sales. If the sale is on the open market, MetLife
represents that the Trust Beneficiary will receive consideration equal
to the weighted average price for all shares of Holding Company Common
Stock that are held by the Trust (the Trust Shares) which are sold on
that day. If the sale is to the Holding Company, MetLife explains that
the consideration will be equal to the weighted average of the high and
low trading prices of the shares for the date of the sale. Further,
MetLife notes that these formulas are designed to provide an average
market price for the day, but will not necessarily be the same as the
price involved for each trade occurring on that day.
The Department notes these clarifications to Representation 12.
Also on page 66206 of the Notice, Representation 13 of the Summary
describes the purchase aspect of the Purchase and Sale Program.
However, MetLife states that this description can be further clarified.
In this regard, MetLife points out that generally, Trust Beneficiaries
with fewer than 1,000 Trust Interests may purchase additional shares of
Holding Company Common Stock (to be held in the Trust) to increase
their Trust Interests up to 1,000. Trust Beneficiaries must purchase at
least $250 worth of shares or a smaller amount required to purchase up
to the 1,000 maximum number of Trust Interests. Therefore, MetLife
explains that ``multiple of 100'' rule is not part of the purchase side
of the Purchase and Sale Program.
The Department has considered this clarification and has revised
Representation 13 to reflect this change.
12. Shareholder Number. On page 66207 of the Notice, in
Representation 14, the first sentence of Footnote 10 states that
``MetLife projects that the initial number of shareholders of the
Holding Company may exceed 10 million.'' MetLife states that it would
be more accurate to revise this sentence to read as follows: ``MetLife
projects that, if the Trust mechanism were not used, the initial number
of shareholders of the Holding Company could exceed 10 million.''
The Department notes this revision and has made the requested
modification.
13. Dividend Distribution. On page 66207 of the Notice,
Representation 15 describes the method of distributing dividends on
Trust Shares which are paid to the Trustee. MetLife notes that the
Trust Agreement also permits the Trustee to arrange with the Holding
Company for the direct payment by the Holding Company of cash dividends
to the Trust Beneficiaries at the same time as the payment of dividends
to the Holding Company stockholders. Therefore, it wishes to clarify
that the Holding Company intends to declare annual cash dividends,
subject to the discretion of its Board of Directors, and to distribute
them directly to the Trust Beneficiaries, as permitted by this
provision.
The Department notes this clarification.
14. Matters for Trust Beneficiary Voting. On page 66207 of the
Notice, the first sentence in the first paragraph of Representation 16
lists matters on which Trust Beneficiaries would be entitled to direct
the Trustee how to vote shares of Holding Company Common Stock.
However, MetLife wishes to expand the list to include * * * any merger
or consolidation, a sale, lease or exchange of all or substantially all
of the assets of the Holding Company, or a recapitalization or
dissolution of the Holding Company * * *'' MetLife states that this
provision would require a vote under applicable Delaware law.
In addition, the second through fourth sentences of the first
paragraph of Representation 16 provide that the Trustee will vote all
shares of Holding Company Common Stock that is held in Trust in
proportion to the instructions received from Trust Beneficiaries which
give such instructions unless the issue is a choice of competing
candidates for director positions and Trust Beneficiaries representing
20 percent or fewer of the Trust Interests provide instructions. Then,
the Trustee will vote only the shares of Holding Company Common Stock
that are equal in number to the number of Trust Interests held by Trust
Beneficiaries which provide instructions.
MetLife wishes to point out that the exception relating to when
fewer than 20 percent of the Trust Beneficiaries provide instructions,
has been deleted.
Finally, the third paragraph of Representation 16 discusses the
termination of the Trust and provides that a Trust Beneficiary will
have the option of receiving shares of allocable Holding Company Common
Stock in-kind or receiving cash as a result of the sale of such Stock
to the Holding Company. MetLife wishes to emphasize that upon
termination of the Trust, a Trust Beneficiary will have the option of
receiving shares in-kind or cash only if the Holding Company, in its
sole discretion, elects to purchase all or a portion of the shares.\3\
---------------------------------------------------------------------------
\3\ MetLife represents that it has not yet formulated procedures
which will govern the possible purchase of Holding Company Common
Stock upon the termination of the Trust. MetLife explains that there
may be reasons why such purchase will not be strictly pro rata. For
example, the Holding Company may wish to buy out odd lot holders
first, or buy out holders who own more than (or less than) a certain
number of shares. However, Metlife further explains that the result
should not result in discrimination among Trust Beneficiaries since
those who are not bought out by the Holding Company may sell their
shares of Common Stock on the open market for fair market value.
---------------------------------------------------------------------------
In response, the Department has revised Representation 16 in light
of these modifications.
15. MetLife's Ownership Interest in State Street. On page 66208 of
the Notice, the fourth paragraph of Representation 17 of the Summary
states, in part, that MetLife ``does not have an ownership interest''
in State Street. MetLife explains that this sentence should be read to
mean an ownership interest other than the very minor one (i.e., MetLife
holds approximately .005962 of the total outstanding shares of State
Street) which is described in the immediately preceding paragraph
involving separate accounts.
The Department notes this clarification and has added the
parenthetical ``(other than a negligible one),'' after the phrase
``ownership interest in State Street'' and before the word ``nor.''
[[Page 13331]]
16. Preliminary Review/MetLife Plans. On page 66208 of the Notice,
the final sentence of Representation 18 states that ``MetLife'' rather
than ``State Street'' has conducted a preliminary review of the Plan of
Reorganization. The Department notes this error and has revised the
sentence, accordingly.
Finally, MetLife states that it has come to its attention that
seven in-house Plans of a MetLife subsidiary, New England Life
Insurance Company, as well as one in-house Plan of another subsidiary,
Fulcrum Financial Advisors, hold policies which may be eligible to
receive compensation in the demutualization.\4\ MetLife points out that
State Street will act on behalf of these MetLife Plans and State Street
has confirmed that it will undertake independent fiduciary
responsibilities on behalf of these Plans.
---------------------------------------------------------------------------
\4\ These MetLife Plans include The New England Benefit Plan for
the Field Force; The New England Benefit Plan, The New England
401(k) Plan and Trust; The New England Retirement Plan and Trust;
The New England Agents' Retirement Plan and Trust; The New England
Agents' Deferred Compensation Plan and Trust; The New England Agency
Employees' Retirement Plan and Trust; and Fulcrum Financial Advisors
401(k) Plan.
---------------------------------------------------------------------------
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-10721) 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, NW, 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.)
First American Capital Management, Inc. (FACM), Located in Newport
Beach, California
[Prohibited Transaction Exemption No. 2000-12; Exemption Application
No. D-10819]
Exemption
Section I--Definitions and Special Rules
The following definitions and special rules will apply to this
exemption:
(a) The term ``person'' includes the person and affiliates of the
person.
(b) An ``affiliate'' of a person includes the following:
(1) Any person directly or indirectly controlling, controlled by,
or under common control with, the person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), brother, sister, or spouse of a brother
or sister, of the person; and
(3) Any corporation or partnership of which the person is an
officer, director or partner.
A person is not an affiliate of another person solely because one
of them has investment discretion over the other's assets. The term
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual.
(c) An ``affiliate of FACM'' includes Pacific American Securities,
LLC, (PAS) and any other broker-dealer registered under the Securities
Exchange Act of 1934 with respect to which FACM has at least a 40
percent minority ownership interest and which is subject to regulations
similar to those to which PAS is subject (such entities referred to
collectively herein as ``FACM'').
(d) An ``agency cross transaction'' is a securities transaction in
which the same person acts as agent for both any seller and any buyer
for the purchase or sale of a security.
(e) The term ``covered transaction'' means an action described in
section II(a), (b), or (c) of this exemption.
(f) The phrase ``effecting or executing a securities transaction''
means the execution of a securities transaction as agent for another
person and/or the performance of clearance, settlement, custodial or
other functions ancillary thereto.
(g) A Plan fiduciary is independent of a person only if the
fiduciary has no relationship to or interest in such person that might
affect the exercise of such fiduciary's best judgment as a fiduciary.
(h) The term ``profit'' includes all charges relating to effecting
or executing securities transactions, less reasonable and necessary
expenses including reasonable indirect expenses (such as overhead
costs) properly allocated to the performance of these transactions
under generally accepted accounting principles.
(i) The term ``securities transaction'' means the purchase or sale
of securities.
(j) The term ``nondiscretionary trustee'' of a Plan means a trustee
or custodian whose power and duties with respect to any assets of the
Plan are limited to (1) the provision of nondiscretionary trust
services to the Plan, and (2) duties imposed on the trustee by any
provision or provisions of the Act or the Code. The term
``nondiscretionary trust services'' means custodial services and
services ancillary to custodial services, none of which services are
discretionary. For purposes of this exemption, a person does not fail
to be a nondiscretionary trustee solely by reason of having been
delegated, by the sponsor of a master or prototype Plan, the power to
amend such Plan.
Section II--Covered Transactions
If each condition of Section III of this exemption is either
satisfied or non-applicable under Section IV, the restrictions of
section 406(b) of the Act and the sanctions resulting from the
application of sections 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(E) or (F) of the Code, shall not apply to--
(a) First American Capital Management (FACM) using its authority to
cause an employee benefit plan (a ``Plan'') to pay a fee to PAS, or
another affiliate of FACM, for effecting or executing securities
transactions as an agent for the Plan, but only to the extent that such
transactions are not excessive under the circumstances, in either
amount or frequency;
(b) FACM acting through PAS, or another affiliate of FACM, as an
agent in an agency cross transaction for both a Plan with respect to
which FACM is a fiduciary and one or more other parties to the
transaction; or (c) The receipt by FACM, through its affiliates, of
reasonable compensation for effecting or executing an agency cross
transaction in which a Plan is a party from one or more other parties
to the transaction.
Section III--Conditions
Except to the extent otherwise provided in Section IV of this
exemption, Section II of this exemption applies only if the following
conditions are satisfied:
(a) The person engaging in the covered transaction is not a trustee
(other than a nondiscretionary trustee) or an administrator of the
Plan, or an employer any of whose employees are covered by the Plan.
(b) The covered transaction is performed under a written
authorization executed in advance by a fiduciary of each Plan whose
assets are involved in the transaction, which Plan fiduciary is
independent of FACM.
(c) The authorization referred to in paragraph (b) of this section
is terminable at will by the Plan, without penalty to the Plan, upon
receipt by
[[Page 13332]]
FACM of written notice of termination. A form expressly providing an
election to terminate the authorization described in paragraph (b) of
this section with instructions on the use of the form must be supplied
to the authorizing fiduciary no less than annually. The instructions
for such form must include the following information:
(1) The authorization is terminable at will by the Plan, without
penalty to the Plan, upon receipt by FACM of written notice from the
authorizing fiduciary or other Plan official having authority to
terminate the authorization; and
(2) Failure to return the form will result in the continued
authorization of FACM to engage in the covered transactions on behalf
of the Plan.
(d) Within three (3) months before an authorization is made, the
authorizing fiduciary is furnished with any reasonably available
information that FACM reasonably believes to be necessary for the
authorizing fiduciary to determine whether the authorization should be
made, including (but not limited to) a copy of this exemption, the form
for termination of authorization described in Section II(c), a
description of FACM's brokerage placement practices, and any other
reasonably available information regarding the matter that the
authorizing fiduciary requests.
(e) FACM furnishes the authorizing fiduciary with either:
(1) a confirmation slip for each securities transaction underlying
a covered transaction within ten (10) business days of the securities
transaction containing the information described in Rule 10b-10(a)(1-7)
under the Securities Exchange Act of 1934, 17 CFR 240.10b-10; or
(2) at least once every three (3) months, and not later than 45
days following the period to which it relates, a report disclosing:
(A) a compilation of the information that would be provided to the
Plan pursuant to subparagraph (e)(1) of this Section during the three-
month period covered by the report;
(B) the total of all securities transaction-related charges
incurred by the Plan during such period in connection with such covered
transactions; and
(C) the amount of the securities transaction-related charges
retained by FACM and the amount of such charges paid to other persons
for execution or other services.
For purposes of this paragraph (e), the words ``incurred by the
Plan'' shall be construed to mean ``incurred by the pooled fund'' when
FACM engages in covered transactions on behalf of a pooled fund in
which the Plan participates.
(f) The authorizing fiduciary is furnished with a summary of the
information required under paragraph (e)(1) at least once per year. The
summary must be furnished within 45 days after the end of the period to
which it relates, and must contain the following:
(1) the total of all securities transaction-related charges
incurred by the Plan during the period in connection with covered
securities transactions;
(2) the amount of the securities transaction-related charges
retained by FACM and the amount of these charges paid to other persons
for execution or other services;
(3) A description of FACM's brokerage placement practices, if such
practices have materially changed during the period covered by the
summary;
(4) (i) A portfolio turnover ratio, calculated in a manner which is
reasonably designed to provide the authorizing fiduciary with the
information needed to assist in discharging its duty of prudence. The
requirements of this subparagraph (f)(4)(i) will be met if the
``annualized portfolio turnover ratio,'' calculated in the manner
described in subparagraph (f)(4)(ii), is contained in the summary;
(ii) The ``annualized portfolio turnover ratio'' shall be
calculated as a percentage of the Plan assets consisting of securities
or cash over which FACM had discretionary investment authority, or with
respect to which FACM rendered, or had any responsibility to render,
investment advice (the ``portfolio'') at any time or times
(``management period(s)'') during the period covered by the report.
First, the ``portfolio turnover ratio'' (not annualized) is obtained by
dividing (A) the lesser of the aggregate dollar amounts of purchases or
sales of portfolio securities during the management period(s) by (B)
the monthly average of the market value of the portfolio securities
during all management period(s). Such monthly average is calculated by
totaling the market values of the portfolio securities as of the
beginning and end of each management period and as of the end of each
month that ends within such period(s), and dividing the sum by the
number of valuation dates so used. For purposes of this calculation,
all debt securities whose maturities at the time of acquisition were
one year or less are excluded from both the numerator and the
denominator.
The ``annualized portfolio turnover ratio'' is then derived by
multiplying the ``portfolio turnover ratio'' by an annualizing factor.
The annualizing factor is obtained by dividing (C) the number twelve
(12) by (D) the aggregate duration of the management period(s)
expressed in months (and fractions thereof).
(iii) The information described in this paragraph (f)(4) is not
required to be furnished in any case where FACM has not exercised
discretionary authority over trading in the Plan's account during the
period covered by the report.
For purposes of this paragraph (f), the words ``incurred by the
Plan'' shall be construed to mean ``incurred by the pooled fund'' when
FACM engages in covered transactions on behalf of a pooled fund in
which the Plan participates.
(g) If an agency cross transaction to which Section IV(b) does not
apply is involved, the following conditions must also be satisfied:
(1) The information required under Sections III(d) or IV(d)(1)(B)
of this exemption includes a statement to the effect that, with respect
to agency cross transactions, FACM will have a potentially conflicting
division of loyalties and responsibilities regarding the parties to the
transactions;
(2) The summary required under Section III(f) of this exemption
includes a statement identifying the total number of agency cross
transactions during the period covered by the summary and the total
amount of all commissions or other remuneration received or to be
received from all sources by FACM in connection with those transactions
during the period;
(3) FACM has the discretionary authority to act on behalf of, and/
or provide investment advice to, either (A) one or more sellers or (B)
one or more buyers with respect to the transaction, but not both;
(4) The agency cross transaction is a purchase or sale, for no
consideration other than cash payment against prompt delivery of a
security for which market quotations are readily available; and
(5) The agency cross transaction is executed or effected at a price
that is at or between the independent bid and independent ask prices
for the security prevailing at the time of the transaction.
Section IV--Exceptions From Conditions
(a) Certain plans not covering employees. Section III does not
apply to covered transactions to the extent they are engaged in on
behalf of individual retirement accounts (IRAs) meeting the conditions
of 29 CFR 2510.3-2(d), or Plans, other than training programs, that
[[Page 13333]]
cover no employees within the meaning of 29 CFR 2510.3-3.
(b) Certain agency cross transactions. Section III of this
exemption does not apply in the case of an agency cross transaction,
provided that FACM:
(1) does not render investment advice to any Plan for a fee within
the meaning of section 3(21)(A)(ii) of the Act with respect to the
transaction;
(2) is not otherwise a fiduciary who has investment discretion with
respect to any Plan assets involved in the transaction (see 29 CFR
2510.3-21(d)); and
(3) does not have the authority to engage, retain or discharge any
person who is, or is proposed to be, a fiduciary regarding any such
Plan assets.
(c) Recapture of profits. Section III(a) of this exemption does not
apply in any case where FACM returns or credits to the Plan all profits
earned by FACM in connection with the securities transactions
associated with the covered transaction.
(d) Special rule for pooled funds. If FACM engages in a covered
transaction on behalf of an account or fund for the collective
investment of the assets of more than one Plan (a Pooled Fund):
(1) Sections III(b), (c), and (d) do not apply if--
(A) The arrangement under which the covered transaction is
performed is subject to the prior and continuing authorization, in the
manner described in this paragraph (d)(1), of a plan fiduciary with
respect to each Plan whose assets are invested in the Pooled Fund who
is independent of FACM. The requirement that the authorizing fiduciary
be independent of FACM shall not apply in the case of a Plan covering
only employees of FACM, if the requirements of Sections IV(d)(2)(A) and
(B) are met.
(B) The authorizing fiduciary is furnished with any reasonably
available information that FACM believes to be necessary to determine
whether the authorization should be given or continued, not less than
30 days prior to implementation of the arrangement or material change
thereto, including (but not limited to) a description of FACM's
brokerage placement practices, and, where requested, any reasonably
available information regarding the matter upon the reasonable request
of the authorizing fiduciary at any time.
(C) In the event an authorizing fiduciary submits a notice in
writing to FACM objecting to the implementation of, material change in,
or continuation of, the arrangement, the Plan on whose behalf the
objection was tendered is given the opportunity to terminate its
investment in the Pooled Fund, without penalty to the Plan, within such
time as may be necessary to effect the withdrawal in an orderly manner
that is equitable to all withdrawing Plans and to the non-withdrawing
Plans. In the case of a Plan that elects to withdraw under this
subparagraph (d)(1)(C), the withdrawal shall be effected prior to the
implementation of, or material change in, the arrangement; but an
existing arrangement need not be discontinued by reason of a Plan
electing to withdraw.
(D) In the case of a Plan whose assets are proposed to be invested
in the Pooled Fund subsequent to the implementation of the arrangement
and that has not authorized the arrangement in the manner described in
subparagraphs (d)(1)(B) and (C) of this section, the Plan's investment
in the Pooled Fund is subject to the prior written authorization of an
authorizing fiduciary who satisfies the requirements of subparagraph
(d)(1)(A).
(2) Section III(a) of this exemption, to the extent that it
prohibits FACM from being the employer of employees covered by a plan
investing in a pool managed by FACM, does not apply if--
(A) FACM is an ``investment manager'' as defined in section 3(38)
of the Act, and
(B) Either (i) FACM returns or credits to the Pooled Fund all
profits earned by FACM in connection with all covered transactions
engaged in by FACM on behalf of the Pooled Fund, or (ii) the Pooled
Fund satisfies the requirements of subparagraph (d)(3) of this section.
(3) A Pooled Fund satisfies the requirements of paragraph (d) of
this section for a fiscal year of the Fund if--
(A) On the first day of such fiscal year, and immediately following
each acquisition of an interest in the Pooled Fund during the fiscal
year by any Plan covering employees of FACM, the aggregate fair market
value of the interests in such Fund of all Plans covering employees of
FACM does not exceed twenty (20) percent of the fair market value of
the total assets of the Fund; and
(B) The aggregate brokerage commissions received by FACM, in
connection with covered transactions engaged in by FACM on behalf of
all Pooled Funds in which a Plan covering employees of FACM
participates, do not exceed five (5) percent of the total brokerage
commissions received by FACM from all sources in such fiscal year.
Effective Date:This exemption is effective for transactions
occurring on or after March 13, 2000.
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 published on December 17, 1999, at 64
FR 70742.
Notice to Interested Persons: The applicant was unable to provide
notice to interested persons of the pendency of the proposed exemption
within the time period specified in the notice of proposed exemption
published in the Federal Register on December 17, 1999. However, by
letter dated February 1, 2000, the applicant represents that a copy of
the notice of proposed exemption, and a supplemental statement in
connection therewith as required by the Department's procedures at 29
CFR 2570.43(b), was delivered by January 25, 2000, to each client of
FACM which is, or is using the assets of, an ``employee benefit plan''
(as defined in section 3(3) of the Act) or a ``plan'' (as defined in
section 4975(e) of the Code). Interested persons were informed that
they had until February 28, 2000, to comment or request a hearing on
the proposed exemption. No written comments or hearing requests were
received by the Department.
FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Deutsche Bank AG, et al. (Deutsche Bank), Located in New York, NY
[Prohibited Transaction Exemption 2000-13; Exemption Application No. D-
10384]
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
(1) the sale to employee benefit plans (the Plans) of a synthetic
guaranteed investment contract (the Buy & Hold Synthetic GIC) offered
by Deutsche Bank, which is or may become a party in interest with
respect to the Plans; and (2) extensions of credit by Deutsche Bank to
the Plans for the purpose of funding benefit withdrawals.
This exemption is conditioned on the requirements set forth below
in Section II.
Section II. General Conditions
(a) The decision to enter into a Buy & Hold Synthetic GIC is made
on behalf of a participating Plan in writing by a fiduciary of such
Plan which is independent of Deutsche Bank.
(b) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to purchase Buy &
[[Page 13334]]
Hold 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 purchased a Buy & Hold 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 Buy & Hold 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--
(A) Has full investment responsibility with respect to Plan assets
invested therein; and
(B) 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 Buy & Hold Synthetic GIC, the
independent Plan fiduciary receives a full and detailed written
disclosure of all material features concerning the Buy & Hold Synthetic
GIC, including--
(1) A copy of the contract (the Contract), underlying the Buy &
Hold Synthetic GIC, which has been executed by Deutsche Bank and the
Plan fiduciary, which stipulates the relevant provisions of such
instrument, the interest rate that is credited (the Crediting Rate) to
the book value account (the Book Value Account) of the Buy & Hold
Synthetic GIC, the applicable fees and the rights and obligations of
the parties;
(2) Information explaining in a manner calculated to be understood
by a Plan fiduciary that if adverse market conditions occur, that the
Crediting Rate to the Book Value Account of a Buy & Hold Synthetic GIC
may be as low as 0 percent; and
(3) Copies of the proposed exemption and grant notice with respect
to the exemptive relief provided herein.
(d) Following the receipt of such disclosure, the Plan fiduciary
approves, in writing, the execution of the Buy & Hold Synthetic GIC on
behalf of the Plan.
(e) Upon entering into a Buy & Hold Synthetic GIC with a Plan
fiduciary of a Plan that provides for participant investment selection,
Deutsche Bank informs the Plan fiduciary that such fiduciary should
provide each Plan participant with--
(1) A summary of the primary provisions of the Contract, including
the applicable fees; and
(2) Information explaining that if adverse market conditions occur,
the Book Value Account's Crediting Rate may be as low as 0 percent.
(f) Subsequent to a Plan's investment in a Buy & Hold Synthetic
GIC, the Plan fiduciary and, if applicable, the Plan participant, upon
such participant's request, receive a monthly report consisting of a
statement of the Book Value Account, which specifies, among other
things, the Book Value Account balance for the prior month, withdrawals
from the Contract, any reduction in the balance of the Book Value
Account on account of a security in the fixed portfolio (the Fixed
Portfolio) becoming an impaired security, interest credited to the Book
Value Account at the Crediting Rate, and the current month's ending
balance for the Book Value Account. The report will also specify the
Current Crediting Rate, the prior month's ending fair market value of
the Fixed Portfolio, the proceeds of any securities liquidated, fees
charged to the Plan, and the current month's ending fair market value
of the Fixed Portfolio and rate of return.
(g) As to each Plan, the combined total of all fees and charges
imposed under a Buy & Hold Synthetic GIC is not in excess of
``reasonable compensation'' within the meaning of section 408(b)(2) of
the Act.
(h) Each Buy & Hold Synthetic GIC specifically provides an
objective method for determining the fair market value of the
securities owned by the Plan pursuant to such GIC.
(i) Each Buy & Hold Synthetic GIC has a predefined maturity date
selected by the Plan fiduciary and agreed to by Deutsche Bank.
(j) Neither Deutsche Bank nor its affiliates maintain custody of
the assets underlying the Buy & Hold Synthetic GIC or commingle those
assets with other funds under their management.
(k) The formulas for computing the Crediting Rate for the Buy &
Hold Synthetic GIC and a charge for terminating the Buy & Hold
Synthetic GIC within three years of its effective date (the Early
Termination Charge) are objectively determined. Further, the Early
Termination Charge compensates Deutsche Bank for its direct costs
incurred in connection with the Buy & Hold Synthetic GIC.
(l) Deutsche Bank maintains books and records of each Buy & Hold
Synthetic GIC transaction for a period of six years in a manner that is
accessible for audit and examination. 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 the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on February 1, 2000 at 65 FR
4843 as well as a notice of technical correction published on February
8, 2000 at 65 FR 6228.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
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
[[Page 13335]]
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, DC, this 8th day of March, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 00-6048 Filed 3-10-00; 8:45 am]
BILLING CODE 4510-29-P