Skip to page content
Secretary of Labor Thomas E. Perez
Proposed Exemptions; Goldman, Sachs & Co. [Notices] [06/13/2000]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Goldman, Sachs & Co. [06/13/2000]

[PDF Version]

Volume 65, Number 114, Page 37175-37183


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10758, et al.]

 
Proposed Exemptions; Goldman, Sachs & Co.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions 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).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) the name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ____, stated in each Notice of 
Proposed Exemption. The applications for exemption and the comments 
received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638,

[[Page 37176]]

200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
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 requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Goldman, Sachs & Co., Located in New York, New York

[Application No. D-10758]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Transactions
    A. The restrictions of section 406(a)(1)(A) through (D) 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 any purchase or sale of securities between certain 
affiliates of Goldman, Sachs & Co. (Goldman) which are foreign broker-
dealers or banks (the Foreign Affiliates, as defined below) and 
employee benefit plans (the Plans) with respect to which the Foreign 
Affiliates are parties in interest, including options written by a 
Plan, Goldman, or a Foreign Affiliate, provided that the following 
conditions, and the General Conditions of Section II, are satisfied:
    (1) The Foreign Affiliate customarily purchases and sells 
securities for its own account in the ordinary course of its business 
as a broker-dealer or bank;
    (2) The terms of any transaction are at least as favorable to the 
Plan as those the Plan could obtain in a comparable arm's length 
transaction with an unrelated party; and
    (3) Neither the Foreign Affiliate nor an affiliate thereof has 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets, and the Foreign Affiliate is a party in interest or 
disqualified person with respect to the Plan assets involved in the 
transaction solely by reason of section 3(14)(B) of the Act or section 
4975(e)(2)(B) of the Code, or by reason of a relationship to a person 
described in such sections. For purposes of this paragraph, the Foreign 
Affiliate shall not be deemed to be a fiduciary with respect to a Plan 
solely by reason of providing securities custodial services for a Plan.
    B. The restrictions of sections 406(a)(1)(A) through (D) and 
406(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 
(D) of the Code, shall not apply to any extension of credit to the 
Plans by the Foreign Affiliates to permit the settlement of securities 
transactions, regardless of whether they are effected on an agency or a 
principal basis, or in connection with the writing of options 
contracts, provided that the following conditions and the General 
Conditions of Section II, are satisfied:
    (1) The Foreign Affiliate is not a fiduciary with respect to the 
Plan assets involved in the transaction, unless no interest or other 
consideration is received by the Foreign Affiliate or an affiliate 
thereof, in connection with such extension of credit; and
    (2) Any extension of credit would be lawful under the Securities 
Exchange Act of 1934 (the 1934 Act) and any rules or regulations 
thereunder, if the 1934 Act, rules, or regulations were applicable.
    C. The restrictions of section 406(a)(1)(A) through (D) 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 lending of securities to the Foreign Affiliates by the 
Plans, provided that the following conditions, and the General 
Conditions of Section II, are satisfied:
    (1) Neither the Foreign Affiliate nor an affiliate thereof has 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets;
    (2) The Plan receives from the Foreign Affiliate (by physical 
delivery, by book entry in a securities depository, wire transfer, or 
similar means) by the close of business on the day the loaned 
securities are delivered to the Foreign Affiliate, collateral 
consisting of cash, securities issued or guaranteed by the U.S. 
Government or its agencies or instrumentalities, irrevocable U.S. bank 
letters of credit issued by persons other than the Foreign Affiliate or 
an affiliate of the Foreign Affiliate, or any combination thereof. All 
collateral shall be in U.S. dollars, or dollar-denominated securities 
or bank letters of credit, and shall be held in the United States;
    (3) The collateral has, as of the close of business on the 
preceding business day, a market value equal to at least 100 percent of 
the then market value of the loaned securities (or, in the case of 
letters of credit, a stated amount equal to same);
    (4) The loan is made pursuant to a written loan agreement (the Loan 
Agreement), which may be in the form of a master agreement covering a 
series of securities lending transactions, and which contains terms at 
least as favorable to the Plan as those the Plan could obtain in a 
comparable arm's length transaction with an unrelated party;
    (5) In return for lending securities, the Plan either (a) receives 
a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or (b) has the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the 
Foreign Affiliate, if such fee is not greater than what the Plan would 
pay in a comparable arm's length transaction with an unrelated party;
    (6) The Plan receives at least the equivalent of all distributions 
on the borrowed securities made during the term of the loan, including, 
but not limited to, cash dividends, interest payments, shares of stock 
as a result of stock splits, and rights to purchase additional 
securities, that the Plan would have received (net of applicable

[[Page 37177]]

tax withholdings) \1\ had it remained the record owner of such 
securities;
---------------------------------------------------------------------------

    \1\ The Department notes the applicant's representation that 
dividends and other distributions on foreign securities payable to a 
lending Plan may be subject to foreign tax withholdings and that the 
Foreign Affiliate will always put the Plan back in at least as good 
a position as it would have been in had it not loaned the 
securities.
---------------------------------------------------------------------------

    (7) If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, the 
Foreign Affiliate delivers additional collateral, by the close of 
business on the following business day, to bring the level of the 
collateral back to at least 100 percent. However, if the market value 
of the collateral exceeds 100 percent of the market value of the 
borrowed securities, the Foreign Affiliate may require the Plan to 
return part of the collateral to reduce the level of the collateral to 
100 percent;
    (8) Before entering into a Loan Agreement, the Foreign Affiliate 
furnishes to the independent Plan fiduciary (a) the most recent 
available audited statement of the Foreign Affiliate's financial 
condition, (b) the most recent available unaudited statement of its 
financial condition (if more recent than the audited statement), and 
(c) a representation that, at the time the loan is negotiated, there 
has been no material adverse change in its financial condition that has 
not been disclosed since the date of the most recent financial 
statement furnished to the independent Plan fiduciary. Such 
representation may be made by the Foreign Affiliate's agreeing that 
each loan of securities shall constitute a representation that there 
has been no such material adverse change;
    (9) The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Foreign Affiliate 
shall deliver certificates for securities identical to the borrowed 
securities (or the equivalent thereof in the event of reorganization, 
recapitalization, or merger of the issuer of the borrowed securities) 
to the Plan within (a) the customary delivery period for such 
securities, (b) five business days, or (c) the time negotiated for such 
delivery by the Plan and the Foreign Affiliate, whichever is least, or, 
alternatively, such period as permitted by Prohibited Transaction Class 
Exemption (PTE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 
18754, May 19, 1987), as it may be amended or superseded; \2\
---------------------------------------------------------------------------

    \2\ PTE 81-6 provides an exemption under certain conditions from 
section 406(a)(1)(A) through (D) of the Act and the corresponding 
provisions of section 4975(c) of the Code for the lending of 
securities that are assets of an employee benefit plan to a U.S. 
broker-dealer registered under the 1934 Act (or exempted from 
registration under the 1934 Act as a dealer in exempt Government 
securities, as defined therein) or to a U.S. bank, that is a party 
in interest with respect to such plan.
---------------------------------------------------------------------------

    (10) In the event that the loan is terminated and the Foreign 
Affiliate fails to return the borrowed securities, or the equivalent 
thereof, within the time described in paragraph 9, the Plan may 
purchase securities identical to the borrowed securities (or their 
equivalent as described above) and may apply the collateral to the 
payment of the purchase price, any other obligations of the Foreign 
Affiliate under the Loan Agreement, and any expenses associated with 
the sale and/or purchase. The Foreign Affiliate is obligated to pay, 
under the terms of the Loan Agreement, and does pay, to the Plan the 
amount of any remaining obligations and expenses not covered by the 
collateral, plus interest at a reasonable rate. Notwithstanding the 
foregoing, the Foreign Affiliate may, in the event it fails to return 
borrowed securities as described above, replace non-cash collateral 
with an amount of cash not less than the then current market value of 
the collateral, provided that such replacement is approved by the 
independent Plan fiduciary; and
    (11) The independent Plan fiduciary maintains the situs of the Loan 
Agreement in accordance with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 CFR 2550.404(b)-1. However, in the event that the independent Plan 
fiduciary does not maintain the situs of the Loan Agreement in 
accordance with the indicia of ownership requirements of Section 404(b) 
of the Act, the Foreign Affiliate shall not be subject to the civil 
penalty which may be assessed under section 502(i) of the Act, or the 
taxes imposed by section 4975(a) and (b) of the Code.
    If the Foreign Affiliate fails to comply with any condition of the 
exemption in the course of engaging in a securities lending 
transaction, the Plan fiduciary who caused the Plan to engage in such 
transaction shall not be deemed to have caused the Plan to engage in a 
transaction prohibited by section 406(a)(1)(A) through (D) of the Act 
solely by reason of the Foreign Affiliate's failure to comply with the 
conditions of the exemption.
Section II--General Conditions
    A. The Foreign Affiliate is a registered broker-dealer or bank 
subject to regulation by a governmental agency, as described in Section 
III.B, and is in compliance with all applicable rules and regulations 
thereof in connection with any transactions covered by this exemption;
    B. The Foreign Affiliate, in connection with any transactions 
covered by this exemption, is in compliance with the requirements of 
Rule 15a-6 (17 CFR 240.15a-6) of the 1934 Act, and Securities and 
Exchange Commission (SEC) interpretations thereof, providing for 
foreign affiliates a limited exemption from U.S. broker-dealer 
registration requirements;
    C. Prior to any transaction, the Foreign Affiliate enters into a 
written agreement with the Plan in which the Foreign Affiliate consents 
to the jurisdiction of the courts of the United States for any civil 
action or proceeding brought in respect of the subject transactions;
    D. The Foreign Affiliate maintains, or causes to be maintained, 
within the United States for a period of six years from the date of any 
transaction such records as are necessary to enable the persons 
described in paragraph E. to determine whether the conditions of the 
exemption have been met, except that--
    (1) a party in interest with respect to a Plan, other than the 
Foreign Affiliate, shall not be subject to a civil penalty under 
section 502(i) of the Act or the taxes imposed by section 4975 (a) and 
(b) of the Code, if such records are not maintained, or not available 
for examination, as required by paragraph E; and
    (2) a prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the Foreign Affiliate's control, such 
records are lost or destroyed prior to the end of the six year period; 
and
    E. Notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the Foreign Affiliate makes the records 
referred to in paragraph D. unconditionally available during normal 
business hours at their customary location to the following persons or 
a duly authorized representative thereof: (1) the Department, the 
Internal Revenue Service, or the SEC; (2) any fiduciary of a Plan; (3) 
any contributing employer to a Plan; (4) any employee organization any 
of whose members are covered by a Plan; and (5) any participant or 
beneficiary of a Plan. However, none of the persons described in (2) 
through (5) of this subsection are authorized to examine the trade 
secrets of the Foreign Affiliate or commercial or financial information 
which is privileged or confidential.

[[Page 37178]]

Section III--Definitions
    A. The term ``affiliate'' of another person shall include: (1) any 
person directly or indirectly, through one or more intermediaries, 
controlling, controlled by, or under common control with such other 
person; (2) any officer, director, or partner, employee or relative (as 
defined in section 3(15) of the Act) of such other person; and (3) any 
corporation or partnership of which such other person is an officer, 
director or partner. For purposes of this definition, the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual;
    B. The term ``Foreign Affiliate'' shall mean an affiliate of 
Goldman, Sachs & Co. that is subject to regulation as a broker-dealer 
or bank by (1) the Ontario Securities Commission and the Investment 
Dealers Association in Canada; (2) the Securities and Futures Authority 
in the United Kingdom; (3) the Deutsche Bundesbank and the Federal 
Banking Supervisory Authority, i.e., der Bundesaufsichtsamt fuer das 
Kreditwesen (the BAK) in Germany; (4) the Ministry of Finance and the 
Tokyo Stock Exchange in Japan; (5) the Australian Securities & 
Investments Commission (the ASIC) in Australia; or (6) the Swiss 
Federal Banking Commission in Switzerland.
    C. The term ``security'' shall include equities, fixed income 
securities, options on equity and on fixed income securities, 
government obligations, and any other instrument that constitutes a 
security under U.S. securities laws. The term ``security'' does not 
include swap agreements or other notional principal contracts.
    Effective Date: This proposed exemption, if granted, will be 
effective as of April 15, 1999.

Summary of Facts and Representations

    1. Goldman, Sachs & Co. (i.e., Goldman), a New York limited 
partnership, is a wholly owned subsidiary and the principal operating 
subsidiary of The Goldman Sachs Group, Inc. (the GS Group), a Delaware 
corporation. Goldman, one of the largest full-line investment services 
firms in the United States, is registered with and regulated by the SEC 
as a broker-dealer and as an investment adviser, is registered with and 
regulated by the Commodity Futures Trading Commission (the CFTC) as a 
futures commission merchant, is a member of the New York Stock Exchange 
(the NYSE) and other principal securities exchanges in the United 
States, and is also a member of the National Association of Securities 
Dealers, Inc. (the NASD). As of August 27, 1999, the GS Group had 
$236.3 billion in assets and $8.6 billion in equity.
    Goldman has several foreign affiliates which are broker-dealers or 
banks. Those covered by the proposed exemption (i.e., the Foreign 
Affiliates), and their respective regulating entities, are as follows:
    (a) Goldman Sachs Canada, located in Toronto, is subject to 
regulation in Canada by the Ontario Securities Commission, as well as 
the Investment Dealers Association, a self-regulatory organization;
    (b) Goldman Sachs International and Goldman Sachs Equity Securities 
(U.K.), both located in London, are subject to regulation in the United 
Kingdom by the Securities and Futures Authority;
    (c) Goldman, Sachs & Co. oHG, located in Frankfurt, is subject to 
regulation in Germany by the Deutsche Bundesbank and the 
Bundesaufsichtsamt fuer das Kreditwesen (i.e., the BAK);
    (d) Goldman Sachs (Japan) Ltd., located in Tokyo, is subject to 
regulation in Japan by the Ministry of Finance and the Tokyo Stock 
Exchange;
    (e) Goldman Sachs Australia, LLC (GS Australia), located in Sydney, 
is subject to regulation in Australia by the Australian Securities & 
Investments Commission (i.e., the ASIC); and
    (f) Goldman, Sachs & Co. Bank, located in Zurich, is subject to 
regulation by the Swiss Federal Banking Commission.
    Goldman requests an individual exemption to permit the Foreign 
Affiliates identified above, as well as those others who, in the 
future, may be subject to governmental regulation in Canada, the United 
Kingdom, Germany, Japan, Australia, or Switzerland, to engage in the 
securities transactions described below with employee benefit plans 
(i.e., the Plans). The proposed exemption is necessary because the 
Foreign Affiliates may be parties in interest with respect to the Plans 
under the Act, by virtue of being a fiduciary (for assets of the Plans 
other than those involved in the transactions) or a service provider to 
such Plans, or by virtue of a relationship to such fiduciary or service 
provider.
    2. Goldman represents that the Foreign Affiliates are subject to 
regulation by a governmental agency in the foreign country in which 
they are located. Goldman further represents that registration of a 
foreign broker-dealer or bank with the governmental agency in these 
cases addresses regulatory concerns similar to those concerns addressed 
by registration of a broker-dealer with the SEC under the 1934 Act. The 
rules and regulations set forth by the above-referenced agencies and 
the SEC share a common objective: the protection of the investor by the 
regulation of securities markets.
    With respect to Canada, the United Kingdom, Japan, and Australia, 
all these countries have comprehensive financial resource and 
reporting/disclosure rules concerning broker-dealers. Broker-dealers 
are required to demonstrate their capital adequacy. The reporting/
disclosure rules impose requirements on broker-dealers with respect to 
risk management, internal controls, and records relating to 
counterparties. All such records must be produced at the request of the 
agency at any time. The agencies' registration requirements for broker-
dealers are enforced by fines and penalties and thus constitute a 
comprehensive disciplinary system for the violation of such rules.
    With respect to Germany, the BAK, an independent federal 
institution with ultimate responsibility to the Ministry of Finance, in 
cooperation with the Deutsche Bundesbank, the central bank of the 
German banking system, provides extensive regulation of the banking 
sector. The BAK insures that Goldman, Sachs & Co. oHG has procedures 
for monitoring and controlling its worldwide activities through various 
statutory and regulatory standards, such as requirements regarding 
adequate internal controls, oversight, administration and financial 
resources. The BAK reviews compliance with these limitations on 
operations and internal control requirements through an annual audit 
performed by the year-end auditor and through special audits, e.g., on 
specific sections of the Banking Act, as ordered by the BAK and the 
respective State Central Bank auditors. The BAK obtains information on 
the condition of Goldman, Sachs & Co. oHG by requiring submission of 
periodic, consolidated financial reports and through a mandatory annual 
report prepared by the auditor. The BAK also receives information 
regarding capital adequacy, country risk exposure, and foreign exchange 
exposure from Goldman, Sachs & Co. oHG. German banking law mandates 
penalties to insure correct reporting to the BAK. The auditors face 
penalties for gross violation of their duties in auditing, for 
reporting misleading information, omitting essential information from 
the audit report, failing to request pertinent information, or failing 
to report to the BAK.
    With respect to Switzerland, the powers of the Swiss Federal 
Banking

[[Page 37179]]

Commission include licensing banks, issuing directives to address 
violations by or irregularities involving banks, requiring information 
from a bank or its auditor regarding supervisory matters and revoking 
bank licenses. The Swiss Federal Banking Commission exercises oversight 
over Swiss banks, such as Goldman, Sachs & Co. Bank, through 
independent auditors known as ``Recognized Auditors,'' which act on 
behalf of the Commission under detailed statutory provisions. Each 
Swiss bank, including Goldman, Sachs & Co. Bank, must appoint a 
recognized Auditor and notify the Swiss Federal Banking Commission of 
an intent to change its auditor. The Recognized Auditor may take action 
within a bank as deemed necessary or as instructed by the Swiss Federal 
Banking Commission and must inform the Commission of supervisory 
matters. The Swiss Federal Banking Commission insures that Goldman, 
Sachs & Co. Bank has procedures for monitoring and controlling its 
worldwide activities through various statutory and regulatory 
standards. Among these standards are requirements for adequate internal 
controls, oversight, administration, and financial resources. The Swiss 
Federal Banking Commission reviews compliance with these limitations on 
operations and internal control requirements through an annual audit 
performed by the Recognized Auditor.
    The Swiss Federal Banking Commission obtains information on the 
condition of Goldman, Sachs & Co. Bank and its foreign offices and 
subsidiaries by requiring submission of periodic, consolidated 
financial reports and through a mandatory annual report prepared by the 
Recognized Auditor. The Swiss Federal Banking Commission also receives 
information regarding capital adequacy, country risk exposure, and 
foreign exchange exposures from Goldman, Sachs & Co. Bank.
    Swiss banking law mandates penalties to insure correct reporting to 
the Swiss Federal Banking Commission. Recognized Auditors face 
penalties for gross violations of their duties in auditing, or 
reporting misleading information, omitting essential information from 
the audit report, failing to request pertinent information or failing 
to report to the Swiss Federal Banking Commission.
    With respect to Australia, GS Australia is subject to regulation 
primarily by the ASIC, and upon being recognized as a participating 
organization, by the Australian Securities Exchange Limited (the ASX). 
Until being recognized as a participating organization by the ASX, GS 
Australia will be subject to ASX regulation by the ASIC. The rules of 
the ASX require each firm that employs registered representatives or 
registered traders to have a positive tangible net worth and be able to 
meet its obligations as they may fall due. In addition, the rules of 
the ASX set forth comprehensive financial resource and reporting/
disclosure rules regarding capital adequacy. Further, to demonstrate 
capital adequacy, the rules of the ASX impose reporting/disclosure 
requirements on broker-dealers with respect to risk management, 
internal controls, and transaction reporting, and recordkeeping 
requirements, to the effect that required records must be produced at 
the request of the ASIC. Finally, the rules and regulations of the ASX 
and the ASIC impose potential fines and penalties on broker-dealers, 
establishing a comprehensive disciplinary system.
    Goldman represents that, in connection with the transactions 
covered by this proposed exemption, the Foreign Affiliates' compliance 
with any applicable requirements of Rule 15a-6 (17 CFR 240.15a-6) of 
the 1934 Act (as discussed further in Paragraph 6, below), and SEC 
interpretations thereof, providing for foreign affiliates a limited 
exemption from U.S. registration requirements, will offer additional 
protections to the Plans.
Principal Transactions
    3. Goldman represents that the Foreign Affiliates operate as 
traders in dealers' markets wherein they customarily purchase and sell 
securities for their own account in the ordinary course of their 
business as broker-dealers or banks and engage in purchases and sales 
of securities, including options on securities, with their clients. 
Such trades are referred to as principal transactions. Goldman 
represents that the role of a broker-dealer in a principal transaction 
in the subject foreign countries is virtually identical to that of a 
broker-dealer in a principal transaction in the United States.
    Goldman requests an individual exemption to permit the Foreign 
Affiliates to engage in principal transactions with the Plans under 
terms and conditions equivalent to those required in Prohibited 
Transaction Class Exemption 75-1 (PTE 75-1, 40 FR 50845, October 31, 
1975), Part II.\3\ Goldman states that because PTE 75-1 provides an 
exemption only for U.S. registered broker-dealers and U.S. banks, the 
principal transactions at issue would fall outside the scope of relief 
provided by PTE 75-1.\4\
---------------------------------------------------------------------------

    \3\ The Department notes that the proposed principal 
transactions are subject to the general fiduciary responsibility 
provisions of Part 4 of Title I of the Act. Section 404(a) of the 
Act requires, among other things, that a fiduciary of a plan act 
prudently and solely in the interest of the plan and its 
participants and beneficiaries, when making investment decisions on 
behalf of the plan.
    \4\ PTE 75-1, Part II, provides an exemption, under certain 
conditions, from section 406(a) of the Act and section 4975(c)(1)(A) 
through (D) of the Code, for principal transactions between employee 
benefit plans and U.S. registered broker-dealers or U.S. banks that 
are parties in interest with respect to such plans.
---------------------------------------------------------------------------

    4. Goldman represents that like the U.S. dealer markets, 
international equity and debt markets, including the options markets, 
are no less dependent on a willingness of dealers to trade as 
principals. Over the past decade, Plans have increasingly invested in 
foreign equity and debt securities, including debt securities issued by 
foreign governments. Thus, Plans seeking to enter into such investments 
may wish to increase the number of trading partners available to them 
by trading with the Foreign Affiliates.
    5. Under the conditions of this proposed exemption, as in PTE 75-1, 
Part II, the Foreign Affiliate must customarily purchase and sell 
securities for its own account in the ordinary course of its business 
as a broker-dealer or bank. The terms of any principal transaction will 
be at least as favorable to the Plan as those the Plan could obtain in 
a comparable arm's length transaction with an unrelated party. Neither 
the Foreign Affiliate nor an affiliate thereof will have discretionary 
authority or control with respect to the investment of the Plan assets 
involved in the principal transaction, or render investment advice 
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those 
assets. In addition, the Foreign Affiliate will be a party in interest 
or disqualified person with respect to the Plan assets involved in the 
principal transaction solely by reason of section 3(14)(B) of the Act 
or section 4975(e)(2)(B) of the Code (i.e., a service provider to the 
Plan), or by reason of a relationship to such a person as described in 
such sections.
    6. Goldman represents that Rule 15a-6 of the 1934 Act provides an 
exemption from U.S. registration requirements for a foreign broker-
dealer that induces or attempts to induce the purchase or sale of any 
security (including over-the-counter equity and debt options) by a 
``U.S. institutional investor'' or a ``major U.S. institutional 
investor,'' provided that the foreign broker-dealer, among other 
things, enters into these principal

[[Page 37180]]

transactions through a U.S. registered broker or dealer intermediary.
    The term ``U.S. institutional investor,'' as defined in Rule 15a-
6(b)(7), includes an employee benefit plan within the meaning of the 
Act if:
    (a) the investment decision is made by a plan fiduciary, as defined 
in section 3(21) of the Act, which is either a bank, savings and loan 
association, insurance company or registered investment adviser, or
    (b) the employee benefit plan has total assets in excess of $5 
million, or
    (c) the employee benefit plan is a self-directed plan with 
investment decisions made solely by persons that are ``accredited 
investors,'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities Act of 1933, as amended.
    The term ``major U.S. institutional investor,'' as defined in Rule 
15a-6(b)(4), includes a U.S. institutional investor that has total 
assets in excess of $100 million.\5\ Goldman represents that the 
intermediation of the U.S. registered broker or dealer imposes upon the 
foreign broker-dealer the requirement that the securities transaction 
be effected in accordance with a number of U.S. securities laws and 
regulations applicable to U.S. registered broker-dealers.
---------------------------------------------------------------------------

    \5\ Note that the categories of entities that qualify as ``major 
U.S. institutional investors'' has been expanded by an SEC No-Action 
letter. See No-Action Letter issued to Cleary, Gottlieb, Steen & 
Hamilton on April 9, 1997 (the April 9, 1997 No-Action Letter).
---------------------------------------------------------------------------

    Goldman represents that under Rule 15a-6, a foreign broker-dealer 
that induces or attempts to induce the purchase or sale of any security 
by a U.S. institutional or major U.S. institutional investor in 
accordance with Rule 15a-6 must, among other things:
    (a) provide written consent to service of process for any civil 
action brought by or proceeding before the SEC or a self-regulatory 
organization;
    (b) provide the SEC with any information or documents within its 
possession, custody or control, any testimony of foreign associated 
persons, and any assistance in taking the evidence of other persons, 
wherever located, that the SEC requests and that relates to 
transactions effected pursuant to the Rule;
    (c) rely on the U.S. registered broker or dealer through which the 
principal transactions with the U.S. institutional and major U.S. 
institutional investors are effected, among other things, for:
    (1) effecting the transactions, other than negotiating their terms;
    (2) issuing all required confirmations and statements;
    (3) as between the foreign broker-dealer and the U.S. registered 
broker or dealer, extending or arranging for the extension of any 
credit in connection with the transactions;
    (4) maintaining required books and records relating to the 
transactions, including those required by Rules 17a-3 (Records to be 
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by 
Certain Exchange Members, Brokers and Dealers) of the 1934 Act; \6\
---------------------------------------------------------------------------

    \6\ Goldman represents that all such requirements relating to 
record-keeping of principal transactions would be applicable in 
respect of any Foreign Affiliate in a transaction that would be 
covered by this proposed exemption.
---------------------------------------------------------------------------

    (5) receiving, delivering, and safeguarding funds and securities in 
connection with the transactions on behalf of the U.S. institutional 
investor or major U.S. institutional investor in compliance with Rule 
15c3-3 (Customer Protection--Reserves and Custody of Securities) of the 
1934 Act; \7\ and
---------------------------------------------------------------------------

    \7\ Under certain circumstances described in the April 9, 1997 
No-Action Letter (e.g., clearance and settlement transactions), 
there may be direct transfers of funds and securities between a Plan 
and a Foreign Affiliate. Please note that in such situations (as in 
the other situations covered by Rule 15a-6), the U.S. broker-dealer 
will not be acting as a principal with respect to any duties it is 
required to undertake pursuant to Rule 15a-6.
---------------------------------------------------------------------------

    (6) Participating in all oral communications (e.g., telephone 
calls) between the foreign associated person and the U.S. institutional 
investor, other than a major U.S. institutional investor. Under certain 
circumstances, the foreign associated person may have direct 
communications and contact with the U.S. institutional investor. (See 
April 9, 1997 No-Action Letter.)
Extensions of Credit
    7. Goldman represents that a normal part of the execution of 
securities transactions by broker-dealers on behalf of clients, 
including employee benefit plans, is the extension of credit to clients 
so as to permit the settlement of transactions in the customary three-
day settlement period. Such extensions of credit are also customary in 
connection with the writing of option contracts.
    Goldman requests that the proposed exemption include relief for 
extensions of credit to the Plans by the Foreign Affiliates in the 
ordinary course of their purchases or sales of securities, regardless 
of whether they are effected on an agency or a principal basis, or in 
connection with the writing of options contracts. In this regard, an 
exemption for such extensions of credit is provided under PTE 75-1, 
Part V, only for transactions between plans and U.S. registered brokers 
or dealers.\8\
---------------------------------------------------------------------------

    \8\ PTE 75-1, Part V, provides an exemption, under certain 
conditions, from section 406 of the Act and section 4975(c)(1) of 
the Code, for extensions of credit, in connection with the purchase 
or sale of securities, between employee benefit plans and U.S. 
registered brokers or dealers that are parties in interest with 
respect to such plans.
---------------------------------------------------------------------------

    8. Under the conditions of this proposed exemption, as in PTE 75-1, 
Part V, the Foreign Affiliate may not be a fiduciary with respect to 
the Plan assets involved in the transaction. However, an exception to 
such condition would be provided herein, as in PTE 75-1, if no interest 
or other consideration is received by the Foreign Affiliate or an 
affiliate thereof, in connection with any such extension of credit. In 
addition, the extension of credit must be lawful under the 1934 Act and 
any rules or regulations thereunder, if the 1934 Act rules or 
regulations were applicable. If the 1934 Act would not be applicable, 
the extension of credit must still be lawful under applicable foreign 
law, in the country where the particular Foreign Affiliate is 
domiciled.
Securities Lending
    9. The Foreign Affiliates, acting as principals, actively engage in 
the borrowing and lending of securities, typically foreign securities, 
from various institutional investors, including employee benefit plans.
    Goldman requests an exemption for securities lending transactions 
between the Foreign Affiliates and the Plans under terms and conditions 
equivalent to those required in PTE 81-6 (see Footnote 2). Because PTE 
81-6 provides an exemption only for U.S. registered broker-dealers and 
U.S. banks, the securities lending transactions at issue would fall 
outside the scope of relief provided by PTE 81-6.
    10. The Foreign Affiliates utilize borrowed securities either to 
satisfy their own trading requirements or to re-lend to other broker-
dealers and entities which need a particular security for a certain 
period of time. As described in the Federal Reserve Board's Regulation 
T, borrowed securities are often used to meet delivery obligations in 
the case of short sales or the failure to receive securities that a 
broker-dealer is required to deliver. Goldman represents that foreign 
broker-dealers are those broker-dealers most likely to seek to borrow 
foreign securities. Thus, the requested exemption will increase the 
lending demand for such securities, providing the Plans with increased 
securities lending opportunities, which will earn such Plans additional 
rates of

[[Page 37181]]

return on the borrowed securities (as discussed below).
    11. An institutional investor, such as a pension fund, lends 
securities in its portfolio to a broker-dealer or bank in order to earn 
a fee while continuing to enjoy the benefits of owning the securities, 
(e.g., from the receipt of any interest, dividends, or other 
distributions due on those securities and from any appreciation in the 
value of the securities). The lender generally requires that the 
securities loan be fully collateralized, and the collateral usually is 
in the form of cash, irrevocable bank letters of credit, or high 
quality liquid securities, such as U.S. Government or Federal Agency 
obligations.
    12. With respect to the subject securities lending transactions, 
neither the Foreign Affiliate nor an affiliate of the Foreign Affiliate 
will have discretionary authority or control with respect to the 
investment of the Plan assets involved in the transaction, or render 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to those assets.
    13. By the close of business on the day the loaned securities are 
delivered, the Plan will receive from the Foreign Affiliate (by 
physical delivery, book entry in a securities depository, wire 
transfer, or similar means) collateral consisting of cash, securities 
issued or guaranteed by the U.S. Government or its agencies or 
instrumentalities, irrevocable U.S. bank letters of credit issued by 
persons other than the Foreign Affiliate or an affiliate of the Foreign 
Affiliate, or any combination thereof. All collateral will be in U.S. 
dollars, or dollar-denominated securities or bank letters of credit, 
and will be held in the United States. The collateral will have, as of 
the close of business on the business day preceding the day it is 
posted by the Foreign Affiliate, a market value equal to at least 100 
percent of the then market value of the loaned securities (or, in the 
case of letters of credit, a stated amount equal to same).
    14. The loan will be made pursuant to a written Loan Agreement, 
which may be in the form of a master agreement covering a series of 
securities lending transactions between the Plan and the Foreign 
Affiliate. The terms of the Loan Agreement will be at least as 
favorable to the Plan as those the Plan could obtain in a comparable 
arm's length transaction with an unrelated party. The Loan Agreement 
will also contain a requirement that the Foreign Affiliate pay all 
transfer fees and transfer taxes relating to the securities loans.
    15. In return for lending securities, the Plan will either (a) 
receive a reasonable fee, which is related to the value of the borrowed 
securities and the duration of the loan, or (b) have the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the 
Foreign Affiliate, if such fee is not greater than what the Plan would 
pay in a comparable arm's length transaction with an unrelated party.
    Earnings generated by non-cash collateral will be returned to the 
Foreign Affiliate. The Plan will be entitled to at least the equivalent 
of all distributions on the borrowed securities made during the term of 
the loan. Such distributions will include cash dividends, interest 
payments, shares of stock as a result of stock splits, and rights to 
purchase additional securities, that the Plan would have received (net 
of any applicable tax withholdings) had it remained the record owner of 
such securities.
    16. If the market value of the collateral as of the close of 
trading on a business day falls below 100 percent of the market value 
of the borrowed securities as of the close of trading on that day, the 
Foreign Affiliate will deliver additional collateral, by the close of 
business on the following business day, to bring the level of the 
collateral back to at least 100 percent. However, if the market value 
of the collateral exceeds 100 percent of the market value of the 
borrowed securities, the Foreign Affiliate may require the Plan to 
return part of the collateral to reduce the level of the collateral to 
100 percent.
    17. Before entering into a Loan Agreement, the Foreign Affiliate 
will furnish to the independent Plan fiduciary (a) the most recent 
available audited statement of the Foreign Affiliate's financial 
condition, (b) the most recent available unaudited statement of its 
financial condition (if more recent than the audited statement), and 
(c) a representation that, at the time the loan is negotiated, there 
has been no material adverse change in its financial condition that has 
not been disclosed since the date of the most recent financial 
statement furnished to the independent Plan fiduciary. Such 
representation may be made by the Foreign Affiliate's agreeing that 
each loan of securities shall constitute a representation that there 
has been no such material adverse change.
    18. The Loan Agreement and/or any securities loan outstanding may 
be terminated by the Plan at any time, whereupon the Foreign Affiliate 
will deliver certificates for securities identical to the borrowed 
securities (or the equivalent thereof in the event of reorganization, 
recapitalization, or merger of the issuer of the borrowed securities) 
to the Plan within (a) the customary delivery period for such 
securities, (b) five business days, or (c) the time negotiated for such 
delivery by the Plan and the Foreign Affiliate, whichever is least, or, 
alternatively, such period as permitted by PTE 81-6, as it may be 
amended or superseded. In the event that the Foreign Affiliate fails to 
return the securities, or the equivalent thereof, within the designated 
time, the Plan will have certain rights under the Loan Agreement to 
realize upon the collateral. The Plan may purchase securities identical 
to the borrowed securities, or the equivalent thereof, and may apply 
the collateral to the payment of the purchase price, any other 
obligations of the Foreign Affiliate under the Loan Agreement, and any 
expenses associated with replacing the borrowed securities. The Foreign 
Affiliate is obligated to pay to the Plan the amount of any remaining 
obligations and expenses not covered by the collateral (the value of 
which shall be determined as of the date the borrowed securities should 
have been returned to the Plan), plus interest at a reasonable rate as 
determined in accordance with an independent market source. If 
replacement securities are not available, the Foreign Affiliate will 
pay the Plan an amount equal to (a) the value of the securities as of 
the date such securities should have been returned to the Plan, plus 
(b) all the accrued financial benefits derived from the beneficial 
ownership of such borrowed securities as of such date, plus (c) 
interest at a reasonable rate determined in accordance with an 
independent market source from such date to the date of payment. The 
amounts paid shall be reduced by the amount or value of the collateral 
determined as of the date the borrowed securities should have been 
returned to the Plan. Notwithstanding the foregoing, the Foreign 
Affiliate may, in the event it fails to return borrowed securities as 
described above, replace non-cash collateral with an amount of cash not 
less than the then current market value of the collateral, provided 
that such replacement is approved by the independent Plan fiduciary.
    19. The independent Plan fiduciary will maintain the situs of the 
Loan Agreement in accordance with the indicia of ownership requirements 
under section 404(b) of the Act \9\ and the

[[Page 37182]]

regulations promulgated under 29 CFR 2550.404(b)-1.
---------------------------------------------------------------------------

    \9\ Section 404(b) of the Act states that no fiduciary may 
maintain the indicia of ownership of any assets of a plan outside 
the jurisdiction of the district courts of the United States, except 
as authorized by regulation by the Secretary of Labor.
---------------------------------------------------------------------------

    20. In summary, the applicant represents that the subject 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons:
    (a) With respect to the principal transactions effected by the 
Foreign Affiliates, the proposed exemption will enable the Plans to 
realize the same benefits of efficiency and convenience which such 
Plans could derive from principal transactions with U.S. registered 
broker-dealers or U.S. banks, pursuant to PTE 75-1, Part II;
    (b) With respect to extensions of credit in connection with 
purchases or sales of securities, the proposed exemption will enable 
the Foreign Affiliates and the Plans to extend credit in the ordinary 
course of the Foreign Affiliate's business to effect agency or 
principal transactions within the customary three-day settlement 
period, or in connection with the writing of option contracts, for 
transactions between plans and U.S. registered brokers or dealers, 
pursuant to PTE 75-1, Part V;
    (c) With respect to securities lending transactions effected by the 
Foreign Affiliates, the proposed exemption will enable the Plans to 
realize a low-risk return on securities that otherwise would remain 
idle, as in securities lending transactions between plans and U.S. 
registered broker-dealers or U.S. banks, pursuant to PTE 81-6; and
    (d) The proposed exemption will provide the Plans with virtually 
the same protections as those provided by PTE 75-1 and PTE 81-6.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Washington County Hospital Association Employees' Cash Balance Plan 
(the Plan), Located in Hagerstown, Maryland;

[Application No. D-10839]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, 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 past contribution by Washington County 
Hospital Association (the Hospital) to the Plan of certain publicly-
traded securities (the Securities), provided: (a) the contribution was 
a one-time transaction; (b) the Securities were valued at their fair 
market value as of the date of the contribution, as determined by an 
independent broker; (c) no commissions were paid in connection with the 
transaction; and (d) the Securities represented less than 5% of the 
assets of the Plan at the time of the contribution.
    Effective Date: If the proposed exemption is granted, the exemption 
will be effective June 18, 1998.

Summary of Facts and Representations

    1. The Hospital is a tax-exempt hospital described in section 
501(c)(3) of the Code. The Plan, which is established and maintained by 
the Hospital, is a defined benefit plan that currently has 1,951 
participants and had assets of $27,896,007 as of July 31, 1999. The 
Plan's assets are held by Hagerstown Trust Company, a Maryland Banking 
Corporation, as custodian.
    2. Marshfield Associates (Marshfield) is one of four investment 
managers that invest assets of the Plan. Marshfield also manages a fund 
known as the Washington County Hospital Pension Restricted Fund (the 
Fund). The Fund is a non-trusteed, non-qualified corporate internal 
fund of the Hospital and was established by the Hospital's Board of 
Trustees for the purpose of holding future contributions to the Plan. 
The assets in both the Plan and the Fund that are managed by Marshfield 
are subject to the same investment guidelines and principles. The 
applicant represents that at no time have any assets of the Fund been 
applied by the Hospital for any purpose other than funding ERISA-
qualified pension benefits for the Hospital's employees. Marshfield 
represents that the fees it collected from the accounts it manages for 
the Hospital for the second quarter of 1998 through the second quarter 
of 2000 represent, in the aggregate, less than one percent of the total 
fee revenues collected by Marshfield for that same period.
    3. On June 9, 1998, the Hospital sent a letter to Marshfield 
directing them to transfer $821,087 from the Fund's account to the 
Plan's account. The Hospital had requested the transfer in order to 
satisfy its required minimum funding contribution to the Plan for the 
fiscal year ending June 30, 1998. Accordingly, on June 18, 1998, 
Marshfield transferred Securities valued at approximately $745,100 from 
the Fund to the Plan, and on June 23, 1998, transferred $75,987 of cash 
from the Fund to the Plan. The total value of assets transferred to the 
Plan was $821,087. The Securities consisted of fixed income securities, 
e.g., corporate bonds and notes, valued as of June 18, 1998 at 
approximately $328,000, and publicly-traded equity securities valued as 
of June 18, 1998 at approximately $417,100. The Securities represent 
less than 3% of the total assets of the Plan.
    4. The Securities consisted of a BankAmerica Corporate Subordinated 
Note, paying interest at 9.20%, due May 15, 2003, with a market value 
of $112,740, as of June 18, 1998; a Honeywell, Inc. Bond paying 8.625%, 
due April 15, 2006, with a market value of $115,100, as of June 18, 
1998; and MCI Communications Corporation Notes, paying 6.25%, due March 
23, 1999, with a market value of $100,160, as of June 18, 1998. In 
addition, the Securities included 1,200 shares of Gannett, Inc., valued 
at $79,725, as of June 18, 1998; 4,000 shares of Pepsico, Inc., valued 
at $167,500, as of June 18, 1998; and 3,600 shares of Student Loan 
Corporation, valued at $169,875, as of June 18, 1998. For purposes of 
ascertaining the values of the Securities on June 18, 1998, Marshfield 
represents that Susan Neuwirth, its assistant portfolio manager for the 
Hospital accounts, consulted Bloomberg, L.P., an independent pricing 
service.
    5. Ms. Elise Hoffman (Ms. Hoffman), a Principal of Marshfield, has 
represented that the Hospital contacted Marshfield on June 9, 1998, to 
make the transfer from the Fund to the Plan. Ms. Hoffman represents 
that she consulted with Mr. Steven Barnhart, an Executive of the 
Hospital, in order to determine whether the Hospital had a preference 
as to whether cash or securities should be transferred. Mr. Barnhart 
informed Ms. Hoffman that the Hospital was indifferent as to which was 
transferred to satisfy the contribution amount. Ms. Hoffman represents 
that it was Marshfield's view that transferring the Securities would be 
financially better for the Plan than first converting them into cash. 
Each of the equity and debt instruments had been identified by 
Marshfield's research department as high quality holdings with 
potential for future appreciation and/or attractive long-term returns. 
But for the need to transfer assets out of the Fund, Marshfield would 
have continued to hold the Securities in the Fund as of the date of the 
transfer. In addition, transferring the Securities rather than the cash 
proceeds of any sale of such Securities would provide the Plan with 
immediate investment in the financial markets and result in savings in

[[Page 37183]]

transaction costs associated with a reacquisition of the same or 
equivalent securities. Thus, Ms. Hoffman represents that Marshfield 
believed it would be a prudent course for the Plan to receive the 
Securities from the Fund directly and to continue to hold them.
    6. PricewaterhouseCoopers LLP (PWC) in Baltimore, Maryland, 
represents that PWC is the certified public accounting firm for the 
Plan. Mr. William L. Stulginsky, a Partner with PWC, represents that in 
the process of preparing the Plan's audit for 1998, it came to PWC's 
attention that the Employer had contributed the Securities to the Plan. 
PWC informed the Hospital that an in-kind contribution of the 
Securities to the Plan would constitute a prohibited transaction. The 
Hospital had believed, based upon conversations with Marshfield as 
described in rep. 5, above, that the transfer of the Securities to the 
Plan was permitted. To resolve this apparent contradiction, the 
Hospital contacted its attorneys, Venable, Baetjer and Howard, LLP 
(Venable). Venable reviewed the transaction and informed the Hospital 
that the contribution constituted a prohibited transaction under 
section 406 of the Act.\10\ The Hospital thereupon established 
procedures to prevent future in-kind contributions to the Plan, and 
Venable followed up with the Hospital in resolving this issue by filing 
a request for the exemption proposed herein.
---------------------------------------------------------------------------

    \10\ The Department directs interested persons to ERISA Advisory 
Opinion 81-69A (dated July 28, 1981) for the principle that 
contributions in-kind that relieve an employer of an obligation to 
make cash contributions to a plan are prohibited exchanges (unless 
otherwise exempt).
---------------------------------------------------------------------------

    7. In summary, the applicant represents that the subject 
transaction satisfied the criteria contained in section 408(a) of the 
Act because: (a) The contribution was a one-time transaction; (b) no 
commissions were paid by the Plan in connection with the transfer of 
the Securities; (c) the Plan's independent investment manager, 
Marshfield, determined that the transaction was appropriate for and in 
the best interests of the Plan; (d) Marshfield consulted Bloomberg, 
L.P., an independent pricing service for purposes of ascertaining the 
values of the Securities on June 18, 1998, the date of transaction; and 
(e) when the prohibited transaction was discovered by the Plan's 
independent C.P.A. firm, the applicant requested the exemption proposed 
herein.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz 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 of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
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) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
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
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 7th day of June, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-14808 Filed 6-12-00; 8:45 am]
BILLING CODE 4510-29-P