EBSA (Formerly PWBA) Federal Register Notice
Grant of Individual Exemptions; The Fidelity Mutual Life Insurance Company (In Rehabilitation) (FML) [07/06/2000]
[PDF Version]
Volume 65, Number 130, Page 41732-41737
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2000-34; Exemption Application No. D-
10712, et al.]
Grant of Individual Exemptions; The Fidelity Mutual Life
Insurance Company (In Rehabilitation) (FML)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of 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.
The Fidelity Mutual Life Insurance Company (In Rehabilitation)
(FML) Located in Radnor, PA
[Prohibited Transaction Exemption 2000-34; Exemption Application No.
D-10712]
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 receipt of certain stock (the Plan Stock) issued by Fidelity
Insurance Group. Inc. (Group), a wholly owned subsidiary of FML, or (2)
the receipt of plan credits (the Plan Credits), by or on behalf of a
mutual member (the Mutual Member) of FML, which is an employee benefit
plan (the Plan), other than the Employee Pension Plan of Fidelity
Mutual Lift Insurance Company, in exchange for such Mutual Member's
membership interest (the Membership Interest) in FML, in accordance
with the terms of a plan of rehabilitation (the Third Amended Plan of
Rehabilitation), approved by the Pennsylvania Commonwealth Court (the
Court) and supervised by both the Court and a rehabilitator (the
Rehabilitator) appointed by the Pennsylvania Insurance Commissioner
(the Commissioner).
This exemption is subject to the following conditions set forth
below in Section II.
Section II. General Conditions
(a) The Third Amended Plan of Rehabilitation is approved by the
Court, implemented in accordance with procedural and substantive
safeguards that are imposed under Pennsylvania law and is subject to
review and/or supervision by the Commissioner and the Rehabilitator.
The Court determines whether the Third Amended Plan of Rehabilitation--
(1) Properly conserves and equitably administers the assets of FML
in the interests of investors, the public and others in accordance with
the legislatively-stated purpose of protecting the interests of the
insureds. creditors and the public; and
(2) Equitably apportions any unavoidable loss through improved
methods for rehabilitating FML.
(b) Each Mutual Member has an opportunity to comment on the Third
Amended Plan of Rehabilitation at hearings held by the Court after full
written disclosure of the terms of the Plan is given to such Mutual
Member by FML.
(c) Participation by all Mutual Members in the Third Amended Plan
of Rehabilitation, if approved by the Court, is mandatory, although
Mutual Members may disclaim Plan Stock.
(d) The decision by a Mutual Member which is a Plan to receive or
disclaim Plan Stock or Plan Credits allocated to such Mutual Member is
made by one or more independent fiduciaries of such plan and not by
FML, Group or Fidelity Life Insurance Company (FLIC). Consequently,
neither FML nor any of its affiliates will exercise investment
discretion nor render ``investment advice'' within the meaning of 29
CFR 2510.3-21(c) with respect to an independent Plan fiduciary's
decision to receive or disclaim Plan Stock or Plan Credits.
(e) Twenty percent of the Plan Stock is allocated to a Mutual
Member based upon voting rights and eighty percent is allocated to a
Mutual Member on the basis of the contribution of the Mutual Member's
insurance or annuity contract (the Contract) to the surplus of FML. The
contribution to FML's surplus is the actuarial calculation of both the
historical and expected future profit contribution of the Contracts
that have contributed to the surplus (i.e., the net earnings) of FML.
The actuarial
[[Page 41733]]
formulas are approved by the Court and the Commissioner.
(f) The value of Plan Stock or Plan Credits that will be received
by a Mutual Member will reflect the aggregate price paid by an
independent investor (the Investor) to Group for common Stock (the
Common Stock) and for plan credit shares (the Plan Credit Shares) in
convertible preferred stock (the Preferred Stock) issued by Group.
(g) All Mutual Members that are Plans participate in the
transactions on the same basis as all other Mutual Members that are not
Plans.
(h) No Mutual Member pays any brokerage commissions or fees in
connection with the receipt of Plan Stock or Plan Credits.
(i) The Third Amended Plan of Rehabilitation does not affect the
rights of a contractholder of the company (the Contractholder), which
is a Mutual Member. In this regard, FML's obligations to a
Contractholder are discharged and terminated upon their endorsement and
assumption by FLIC, thereby making FLIC liable for the obligations
under such Contract.
Section III. Definitions
For purposes of this exemption:
(a) The term ``FML'' means the Fidelity Mutual Life Insurance
Company (In Rehabilitation) and any affiliate of FML as defined in
paragraph (c) of this Section III.
(b) The term ``FLIC'' means Fidelity Life Insurance Company and any
affiliate of FLIC as defined in paragraph (c) of this Section III.
(c) An ``affiliate'' of FML or FLIC includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with FML or FLIC; (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.) or
(2) Any officer, director or partner in such person.
(c) The term ``Mutual Member'' means a Contractholder whose name
appears on FML's records as an owner of an FML Contract on the Record
Date of the Third Amended Plan of Rehabilitation.
(d) The term ``Investor'' means the person (e.g., individual,
corporation, partnership, joint venture, etc.) selected by the
Rehabilitator and approved by the Court to be the purchaser under the
Investment Agreement.
(e) The term ``Group Stock'' refers to shares of Group Common Stock
and to Group Preferred Stock, which will have a cumulative, annual
dividend equal to 7 percent of its liquidation value. The Preferred
Stock will be Series A stock having a par value of $0.01 per share and
a liquidation preference and a redemption value of $25 per share.
(f) The term ``Plan Stock'' means the 3 million shares of Group
Common Stock and the 2.8 million of Group Preferred Stock that will be
allocated to Mutual Members.
(g) The term ``Plan Credit'' means either (1) additional paid up
insurance for a traditional life policy or (2) credits to the account
values for Contracts that are not traditional (such as a flexible
premium policy). Under FML's Third Amended Plan of Plan of
Rehabilitation, Plan Credits are to be allocated to certain Mutual
Members in lieu of Plan Stock.
(h) The term ``Plan Credit Shares'' includes those shares of Plan
Stock (i.e., the 15,000 to 180,000 shares of Group Common Stock) and
any shares of Group Preferred Stock to be issued and sold by Group to
the Investor to fund Plan Credits.
(i) The term ``Policyholder Stock means those shares of Group
Common or Group Preferred Stock that will be issued and distributed to
Mutual Members, consisting of Plan Stock plus any shares of Group Stock
(in excess of Plan Stock) issued for purposes of correcting errors in
the allocation of Plan Stock, less Plan Credit Shares and any
disclaimed shares.
(j) The term ``Investor Stock'' means the 3.1 million shares of
Group Common Stock (other than Plan Stock) and the Plan Credit Shares
which, under the Third Amended Plan of Rehabilitation, are sold to the
Investor pursuant to bid procedures and the Investment Agreement.
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
April 7, 2000 at 65 FR 18359.
Written Comments
The department received two written comments with respect to the
Notice. The comments were submitted by FML for the purpose of
clarifying certain statements made in the Notice and to provide
additional information regarding specific issues raised therein. As
discussed below, a majority of FML's concerns relate to the general
conditions (the General Conditions) set forth in Section II of the
Notice while other areas of concern relate to the Summary of Facts and
Representations (the summary) of the Notice.
Concerns About the General Conditions
1. Standard of Review by the Court. Paragraph (a) of Section II of
the Notice states that the Court will determine ``* * * whether the
Third Amended Plan of Rehabilitation is fair and equitable to Mutual
Members.'' FML states that although this General Condition may convey a
broad description of the court's review, ``fair and equitable'' is a
technical standard of review in some states but it is not a statutory
requirement under Pennsylvania law. According to FML, the Pennsylvania
Supreme court has stated in Foster v. Mutual Fire, Marine & Inland
Insurance Co., 614 A2d 1086, 1094 (PA 1992) that a rehabilitation plan
must ``properly conserve and equitably administer the assets of the
involved corporation in the interests of investors, the public and
others'' in accordance with the ``legislatively stated purpose [of]
`the protection of the interests of the insureds, creditors and the
public generally * * *' and the `equitable apportionment of any
unavoidable loss' through * * * `improved methods for rehabilitating
insurers * * *' ''
In response to this comment, the Department has revised Section
II(a) of the exemption, as follows, to reflect the decision of the
Pennsylvania Supreme Court:
The Third Amended Plan of Rehabilitation is approved by the
Court, implemented in accordance with procedural and substantive
safeguards that are imposed under Pennsylvania law and is subject to
review and/or supervision by the Commissioner and the Rehabilitator.
The Court determines whether the Third Amended Plan of
Rehabilitation--
(1) Properly conserves and equitably administers the assets of
FML in the interests of investors, the public and others in
accordance with the legislatively-stated purpose of protecting the
interests of the insureds, creditors and the public; and
(2) Equitably apportions any unavoidable loss through improved
methods for rehabilitating FML.
2. Non-Voting by Mutual Members. Paragraph (b) of Section II of the
Notice states, in part, that ``[e]ach Mutual Member has an opportunity
to vote and comment on the Third Amended Plan of Rehabilitation.'' FML
points out that each Mutual member has received, and will continue to
receive, full written disclosure of the terms of such Plan and each
Mutual Member also has the opportunity to comment on the Plan by filing
written objections to the Court or providing testimony at the hearings
for such Plan.
However, FML notes that Mutual Members do not have an opportunity
to
[[Page 41734]]
vote, as such, on the Third Amended Plan of Rehabilitation because
there is no provision in the Pennsylvania rehabilitation statute
requiring or allowing for a vote by such Mutual Members on the Third
Amended Plan of Rehabilitation. Additionally, FML explains that
Footnote 20 of the Summary states that the Rehabilitator has been
advised that the Pennsylvania rehabilitation statute, which does
require a vote in certain circumstances, is not applicable to this
situation.
Moreover, in Representation 20(b) of the Summary, FML notes that
the ``Court will review the terms of the Third Amended Plan of
Rehabilitation and will approve such Plan following * * * a public
hearing * * *'' Finally, FML notes that in Representation 20(c) of the
Summary ``[e]ach Mutual Member will have an opportunity to participate
in any hearing or hearings before the Court regarding the approval of
the Third Amended Plan of Rehabilitation.''
On the basis of the foregoing clarifications, the Department has
decided to revise Section II(b) of the exemption to read as follows:
Each Mutual Member has an opportunity to comment on the Third
Amended Plan of Rehabilitation at hearings held by the Court after
full written disclosure of the terms of the Plan is given to such
Mutual Member by FML.
3. Receipt of Consideration by Plan Mutual Members. Paragraph (d)
of Section II of the Notice states that --
Any determination by a Mutual Member which is a Plan to receive
Plan Stock or Plan Credits is made by one or more independent
fiduciaries of such plan and not by FML, Group or Fidelity Life
Insurance Company (FLIC). Consequently, neither FML nor any of its
affiliates will exercise investment discretion nor render
``investment advice'' within the meaning of 29 CFR 2510.3-21 (c)
with respect to an independent Plan fiduciary's decision to elect
Plan Stock or Plan Credits.
FML represents that it is accurate to state that the determination
to receive Plan Stock or Plan Credits is not made by FML, Group or
FLIC. However, FML points out that there is no ``determination or
decision'' to be made by a Mutual Member because the Third Amended Plan
of Rehabilitation provides for Plan Stock to go to all Mutual Members,
except for Non-Trusteed Tax-Qualified Retirement Funding Contracts that
are described in sections 401(a), 403(a) or (b) or 408 of the Code. FML
represents that Non-Trusteed Tax-Qualified Retirement Funding Contracts
will automatically receive Plan Credits.
In addition, FML explains that the Third Amended Plan of
Rehabilitation sets forth exactly who will receive Plan Stock or Plan
Credits, with no option for an election between the two. FML further
states that the only election that can be made by a Mutual Member is
the disclaimer to receive Plan Stock or Plan Credits, and that decision
cannot be made by FML, Group or FLIC.
In consideration of this comment, the Department has decided to
revise Section II(d) of the exemption to read as follows:
The decision by a Mutual Member which is a Plan to receive or
disclaim Plan Stock or Plan Credits allocated to such Mutual Member
is made by one or more independent fiduciaries of such plan and not
by FML, Group or Fidelity Life Insurance Company (FLIC).
Consequently, neither FML nor any of its affiliates will exercise
investment discretion nor render ``investment advice'' within the
meaning of 29 CFR 2510.3-21(c) with respect to an independent Plan
fiduciary's decision to receive or disclaim Plan Stock or Plan
Credits.
4. FML's Obligations to Contractholders. Paragraph (i) of Section
II of the Notice states that ``[a]ll of FML's obligations to
contractholders (the Contractholders) of the company which are Mutual
Members remain in force upon endorsement and transfer to FLIC and are
not affected by the Third Amended Plan of Rehabilitation.''
Nevertheless, FML notes that while this General Condition is
technically correct, it is somewhat misleading. In this regard, FML
indicates that Representation 11 of the Summary states that ``[e]ach
Contractholder having a Contract in force on the Closing Date will have
his or her Contract assumed and reinsured by FLIC as of the Closing
Date.'' In addition, FML notes that Representation 19 of the Summary
states that FML will discontinue its business operations after the
Closing Date and will subsequently liquidate and dissolve.
Consequently, FML represents that its obligations to the
Contractholders will be discharged and terminated upon their assumption
by FLIC rather that remaining in force. Under these circumstances, FML
explains that FLIC will then be responsible for those contractual
obligations under the endorsed or assumed contracts.
Thus, on the basis of this comment, the Department has decided to
revise paragraph (i) of Section II of the exemption to read as follows:
The Third Amended Plan of Rehabilitation does not affect the
rights of a contractholer of the company (the Contractholder), which
is a Mutual Member. In this regard. FML's obligations to a
Contractholer are discharged and terminated upon their endorsement
and assumption by FLIC, thereby making FLIC liable for the
obligations under such Contract.
Concerns About the Summary
1. Possible Termination of the Moratorium. Representation 3 of the
Summary states, in pertinent part, that ``[u]nder the Order of
Rehabilitation, a moratorium was imposed on cash distributions,
Contract surrenders, withdrawals and policy loans, except in certain
hardship situations.'' The moratorium, which was imposed by the Court
and which placed FML into rehabilitation, was intended to stop the
outflow of cash and to afford the Rehabilitator time to stabilize FML's
assets.
FML represents that it is currently considering eliminating this
moratorium but it has not made a final decision nor has it determined
when the end of the moratorium will occur. FML asserts that the
Rehabilitator has petitioned the Court for five separate revisions of
the moratorium based on FML's improved financial condition. FML notes
that these revisions have generally allowed access to a percentage of
cash value, included additional hardship criteria and have restored the
exercise of various contractual obligations. None of the five petitions
has been opposed by the Court.
FML states that although the Rehabilitator is considering a
termination of the moratorium, much analysis has to be conducted before
a decision can be made. In this regard, FML explains that actuarial
information must be presented to the Court to explain the financial and
economic effect of ending the moratorium. In addition, notice, an
objection period, and possibly a hearing will be required.\1\
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\1\ Although the notice has generally been sent only to FML's
creditors and to the ``Master Service List,'' FML states that it
will most likely recommend the same scope of notice to the Court
assuming the moratorium is to be terminated. However, once a
revision of the moratorium is approved, FML explains that notice of
the Court's order must also be sent to all Contractholders and this
procedure will be followed in the event the moratorium is lifted.
Because none of the previous petitions have been opposed, FML states
that no hearing has been required. However, if objections are filed,
the Court will decide whether to hold a hearing or make a decision
based on the pleadings.
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As for the effect of the termination of the moratorium on the
amount of Plan Stock or Plan Credits a Mutual Member will be entitled
to receive, FML states if Contractholders are permitted to surrender
their Contracts prior to the Record Date, as defined in the Third
Amended Plan of Rehabilitation,\2\ and
[[Page 41735]]
choose to do so, such Contractholders will be terminating their status
as Mutual Members. If the Contracts of these Contractholders are not in
force on the Record Date, FML explains that the Contractholders will
not be entitled to receive Plan Stock or Plan Credits.
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\2\ According to the Third Amended Plan of Rehabilitation, the
``Record Date'' means the last day of the month immediately
preceding the month in which the Preliminary Approval Order,
approving such Plan, is entered by the Court. According to FML's
counsel, the Record Date is projected for November 30, 2000.
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FML further represents that if the moratorium is terminated prior
to the Record Date, the Contractholders will still have the option of
voluntarily surrendering their Contracts. However, FML explains that it
will be required to make significant disclosures to these
Contractholders to inform them of the benefits they will be foregoing
if they surrender their Contracts prematurely. Alternatively, FML
states that the Contractholders may choose to hold onto their Contracts
until after the Record Date. Under these circumstances, the
Contractholders, who would then be considered Mutual Members of FML,
would receive their allocable shares of Plan Stock or Plan Credits but
without an increase in the amount of consideration.
In any event, FML states it will treat Plan Contractholders no
differently from other Contractholders that are not Plans in regard to
the decision to surrender a Contract or the effective date of
terminating the moratorium, and requisite disclosures. In this regard,
FML states that Plan Contractholders will be sent the same notice and
disclosure information that is provided to all other Contractholders
that are not Plans.
The Department has noted the foregoing clarifications to
Representation 3 and the impact of the termination of the moratorium on
a Mutual Member's receipt of Plan Stock or Plan Credits. In this
regard, the Department notes that no relief is being provided by this
exemption for the receipt of cash by a Mutual Member that is a Plan.
2. Investor Qualifications. Representation 9 of the Summary sets
forth the minimum qualifications for the Investor. FML states that
while the substance of Representation 9 is accurate, the qualifications
are actually contained in the Bid Procedures filed under the Third
Amended Plan of Rehabilitation rather than in the Plan itself.
The Department has noted this clarification to the information
contained in Representation 9 of the Summary.
3. Plans Covered by the Exemption Request. Representation 12 of the
Summary states, in part, that ``[u]nder Section 4.05 of the Third
Amended Plan of Rehabilitation, any Contract held in connection with a
qualified retirement plan or an arrangement described in section[s]
401(a), 403(a) or 408 of the Code. * * * will be allocated Plan Credits
in lieu of Plan Stock, in exchange for the relinquishment of the Mutual
Member's Membership Interest under such Contract.'' FML represents that
although Section 4.05 of the Third Amended Plan of Rehabilitation
references only sections 401, 403 and 408 of the Code, the exemption
application specifies Contracts held in connection with a qualified
retirement plan or an arrangement described in section 401(a), 403(a)
or (b) or 408 of the Code.
The Department acknowledges this comment relating to the
information contained in Representation 12 of the Summary.
For further information regarding FML's comment letters and other
matters discussed herein, interested persons are encouraged to obtain
copies of the exemption application file (Exemption Application No. D-
10712) the Department is maintaining in this case. The complete
application file, as well as all supplemental submissions received by
the Department, are made available for public inspection in the Public
Documents Room of the Pension and Welfare Benefits Administration, Room
N-5638, U.S. Department of Labor, 200 Constitution Avenue, N.W.,
Washington, D.C. 20210.
Accordingly, after giving full consideration to the entire record,
including FML's 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.)
Fortis, Inc. Employees' Uniform Profit Sharing Plan (the Fortis
Plan) Located in New York, New York
[Prohibited Transaction Exemption 2000-35; Exemption Application
Number D-10789]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (2) of the Act
and the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall
not apply to: (1) The restoration payment (the Restoration Payment) by
Fortis, Inc. (Fortis), a party in interest with respect to the Fortis
Plan, to the Fortis Plan with respect to a certain counterfeit
certificate of deposit (the Plan CD); and (2) the potential future
payment to Fortis of recapture payments (the Recapture Payments) made
to the Fortis Plan pursuant to proceedings involving the issuer of the
counterfeit CD. This exemption is subject to the following conditions:
(A) The Restoration Payment consists of:
(i) $501,125, an amount equal to the Plan CD's full face value at
the time of the Plan CD's maturity; and
(ii) An amount in cash which is equal to:
(a) a 5.5% annual rate of return on the Plan CD's maturity value of
$501,125 for the period beginning October 30, 1997 and ending on
December 31, 1998; and
(b) a rate of return on the amount described in (A)(ii)(a) above
which is equal to the average annual rate of return of the Fortis Money
Market Fund from January 1, 1999 until the date of the Restoration
Payment (i.e., the Interest Payment);
(B) The Restoration Payment is a one-time transaction for cash;
(C) The Fortis Plan pays no expenses with respect to the
Restoration Payment;
(D) The Fortis Plan retains any amount in excess of the Restoration
Payment that it collects in its attempts to recover monies due under
the Plan CD; and
(E) Any Recapture Payments paid by the Fortis Plan to Fortis are
limited to the amount of the Restoration Payment and are restricted
solely to the amounts, if any recovered, by the Fortis Plan with
respect to the counterfeit CD in litigation or otherwise.
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 May 4, 2000 at 65 FR
25954.
Written Comments
The Department received two written comments, both of which were in
favor of granting the proposed exemption. Accordingly, after giving
full consideration to the entire record, the Department has determined
to grant the exemption.
FOR FURTHER INFORMATION CONTACT: Mr. J. Martin Jara, telephone (202)
219-8881. (This is not a toll-free number).
Canada Life Assurance Company (Canada Life) Located in Toronto,
Ontario, Canada
[Prohibited Transaction Exemption 2000-36; Exemption Application No.
D-10790]
[[Page 41736]]
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,
effective November 4, 1999, to the (1) receipt of common shares (Common
Shares) of Canada Life Financial Corporation, the holding company for
Canada Life, or (2) the receipt of cash (Cash) or policy credits
(Policy Credits), by or on behalf of any eligible policyholder (the
Eligible Policyholder) of Canada Life which is an employee benefit plan
(the Plan), subject to applicable provisions of the Act and and/or the
Code, other than a Plan established by Canada Life or an affiliate for
its own employees, in exchange for such Eligible Policyholder's
membership interest in Canada Life, in accordance with the terms of a
conversion proposal (the Conversion Proposal) adopted by Canada Life
and implemented under the insurance laws of Canada and the State of
Michigan.
This exemption is subject to the conditions set forth below in
Section II.
Section II. General Conditions
(a) The Conversion Proposal was implemented in accordance with
procedural and substantive safeguards that were imposed under the
insurance laws of Canada and the State of Michigan and was subject to
review and/or approval in Canada by the Office of the Superintendent of
Financial Institutions (OSFI) and the Minister of Finance (the Canadian
Finance Minister) and, in the State of Michigan, by the Commissioner of
Insurance (the Michigan Insurance Commission).
(b) OSFI, the Canadian Finance Minister, and the Michigan Insurance
Commissioner reviewed the terms of the options that were provided to
Eligible Policyholders of Canada Life as part of their separate reviews
of the Conversion Proposal. In this regard,
(1) OFSI (i) Authorized the release of the Conversion Proposal and
all information to be sent to Eligible Policyholders, (ii) oversaw each
step of the conversion process (the Conversion), and (iii) made a final
recommendation to the Canadian Finance Minister on the Conversion
Proposal;
(2) The Canadian Finance Minister, in his sole discretion, could
consider such factors as (i) Whether the Conversion Proposal was fair
and equitable to Eligible Policyholders, (ii) whether the Conversion
Proposal was in the best interests of the financial system in Canada,
and (iii) if sufficient steps had been taken to inform Eligible
Policyholders of the Conversion Proposal and of the special meeting on
Conversion;
(3) The Michigan Insurance Commission made a determination that the
Conversion Proposal was (i) Fair and equitable to all Eligible
Policyholders and (ii) consistent with the requirements of Michigan
law; and
(4) Both the Canadian Finance Minister and the Michigan Insurance
Commissioner concurred on the terms of the Conversion Proposal.
(c) Each Eligible Policyholder had an opportunity to vote to
approve the Conversion Proposal after full written disclosure was given
to the Eligible Policyholder by Canada Life.
(d) One or more independent fiduciaries of a Plan that was an
Eligible Policyholder received Common Shares, Cash or Policy Credits
pursuant to the terms of the Conversion Proposal and neither Canada
Life nor any of its affiliates exercised any discretion or provided
``investment advice,'' as that term is defined in 29 CFR 2510.3-21(C),
with respect to such acquisition.
(e) After each Eligible Policyholder was allocated 100 Common
Shares, additional consideration was allocated to such Eligible
Policyholder who owned an eligible policy based on an actuarial formula
that took into account such factors as the total cash value, the basic
annual premium and the duration of such eligible policy. The actuarial
formula was reviewed by the Canadian Finance Minister and the Michigan
Insurance Commissioner.
(f) All Eligible Policyholders that were Plans participated in the
transactions on the same basis within their class groupings as other
Eligible Policyholders that were not Plans.
(g) No Eligible Policyholder paid or will pay any brokerage
commissions or fees to Canada Life or its affiliates in connection with
their receipt of Common Shares, in connection with the implementation
of the secondary offering or the assisted sales program.
(h) All of Canada Life's policyholder obligations will remain in
force and will not be affected by the Conversion Proposal.
Section III. Definitions
For purposes of this exemption:
(a) The term ``Canada Life'' means the Canada Life Assurance
Company and any affiliate of Canada Life as defined in paragraph (b) of
this Section III.
(b) An ``affiliate'' of Canada Life Includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Canada Life; (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.) or
(2) Any officer, director or partner in such person.
(c) The term ``Eligible Policyholder'' means a policyholder who--
(i) Was the owner of a voting policy at any time on April 2, 1998
(the Eligibility Day):
(ii) Became the owner of a voting policy, if the voting policy was
applied for by that person before the Eligibility Day, and the
application was received by Canada Life on or before the close of
business on June 30, 1998; or
(iii) Was the owner of a voting policy that lapsed before June 2,
1998 and, where the policy terms provided that, as of June 2, 1998, the
owner was entitled to request that the policy be reinstated, the policy
was reinstated by the person who was the owner at the time the policy
lapsed in accordance with its terms (without regard to when the right
to reinstate expired) during the period which began on April 2, 1998
and ended 90 days before the special meeting.
(d) The term ``Policy Credit'' means--
(1) For an individual life insurance policy with respect to which
dividends may be paid, dividend deposits when the dividend deposit
option has been selected under the policy and, in all other cases,
dividend additions;
(2) For in individual life insurance policy other than a policy
with respect to which dividends may be paid, an increase in the fund
value (to which no sales or surrender or similar charges will be
applied):
(3) For an individual deferred annuity policy with respect to which
dividends may be paid, dividend additions;
(4) For an individual deferred annuity policy other than a policy
with respect to which dividends may be paid, an increase in
accumulation value (to which no sales or surrender or similar charges
will be applied); and
(5) For a supplementary contract, settlement option or annuity in
annuitization status, an increase in the periodic annuity payment
amount. If the periodic annuity payment is on a life basis, the
increase will be a life annuity with cash refund basis.
EFFECTIVE DATE: This exemption is effective as of November 4, 1999.
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 that was published on May 4, 2000 at
65 FR 25956.
[[Page 41737]]
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 fidicuary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 30th day of June, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 00-17066 Filed 7-5-00; 8:45 am]
BILLING CODE 4510-29-M