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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; The Fidelity Mutual Life Insurance Company (In Rehabilitation) (FML) [Notices] [07/06/2000]

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