Grant of Individual Exemptions; The Banc Funds Company, LLC
(TBFC) [Notices] [08/10/2000]
Grant of Individual Exemptions; The Banc Funds Company, LLC
(TBFC) [08/10/2000]
Volume 65, Number 155, Page 49018-49028
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2000-37; Exemption Application No. D-
10624, et al.]
Grant of Individual Exemptions; The Banc Funds Company, LLC
(TBFC)
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
[[Page 49019]]
notices also invited interested persons to submit comments on the
requested exemptions to the Department. In addition the notices stated
that any interested person might submit a written request that a public
hearing be held (where appropriate). The applicants have represented
that they have complied with the requirements of the notification to
interested persons. No public comments and no requests for a hearing,
unless otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), transferred the authority of the Secretary of the
Treasury to issue exemptions of the type proposed to the Secretary of
Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
The Banc Funds Company, LLC (TBFC)
Located in Chicago, IL
[Prohibited Transaction Exemption 2000-37; Exemption Application No. D-
10624]
Exemption
Section I. Covered Transactions
The restrictions of sections 406(a) and 406(b) 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 July 15, 1998, to: (1) The purchase or redemption of
interests in the Banc Fund V, L.P. (the Partnership) by employee
benefit plans (the Plans) investing in the Banc Fund V Group Trust (the
BF V Group Trust), where TBFC, a party in interest with respect to the
Plans, is the general partner of MidBanc V, L.P., which is, in turn,
the general partner (the General Partner) of the Partnership; (2) the
sale, for cash or other consideration, by the Partnership of certain
securities that are held as Partnership assets, to a party in interest
with respect to a Plan participating in the Partnership through the BF
V Group Trust, where the party in interest proposes to acquire or merge
with the portfolio company (the Portfolio Company) that issued such
securities; and (3) the payment to the General Partner, by Plans
participating in the Partnership through the BF V Group Trust, of an
incentive fee (the Performance Fee) which is intended to reward the
General Partner for the superior performance of investments in the
Partnership.
This exemption is subject to the following conditions as set forth
below in Section II.
Section II. General Conditions
(a) Prior to a Plan's investment in the BF V Group Trust and the
Partnership, a Plan fiduciary which is independent of TBFC and its
affiliates (the Independent Fiduciary) approves such investments on
behalf of the Plan.
(b) Each Plan investing in the BF V Group Trust and the Partnership
has total assets that are in excess of $50 million.
(c) No Plan may invest more than 10 percent of its assets in the BF
V Group Trust, and the interests held by the Plan may not exceed 25
percent of the assets of the BF V Group Trust.
(d) No Plan may invest more than 25 percent of its assets in
investment vehicles (i.e., collective investment funds or separate
accounts) managed or sponsored by TBFC and/or its affiliates.
(e) Prior to investing in the BF V Group Trust and the Partnership,
each Independent Fiduciary contemplating investing therein receives a
Private Placement Memorandum and its supplement containing descriptions
of all material facts concerning the purpose, structure and the
operation of the BF V Group Trust and the Partnership.
(f) An Independent Fiduciary which expresses further interest in
the BF V Group Trust and Partnership receives--
(1) A copy of the BF V Group Trust Agreement outlining the
organizational principles, investment objectives and administration of
the BF V Group Trust, the manner in which shares in the Group Trust may
be redeemed, the duties of the parties retained to administer the BF V
Group Trust and the manner in which BF V Group Trust shares are to be
valued; and
(2) A copy of the Partnership Agreement describing the
organizational principles, investment objective and administration of
the Partnership, the manner in which the Partnership interests may be
redeemed, the manner in which Partnership assets are to be valued, the
duties and responsibilities of the General Partner, the rate of
remuneration of the General Partner, and the conditions under which the
General Partner may be removed.
(g) If accepted as an investor in the BF V Group Trust and the
Partnership, the Independent Fiduciary is--
(1) Furnished with the names and addresses of all other
participating Plan and non-Plan investors in the Partnership;
(2) Required to acknowledge, in writing, prior to purchasing a
beneficial interest in the BF V Group Trust (and a corresponding
limited partnership interest in the Partnership) that such Independent
Fiduciary has received copies of such documents; and
(3) Required to acknowledge, in writing, to the General Partner
that such fiduciary is independent of TBFC and its affiliates, capable
of making an independent decision regarding the investment of Plan
assets, knowledgeable with respect to the Plan in administrative
matters and funding matters related thereto, and able to make an
informed decision concerning participation in the BF V Group Trust and
the Partnership.
(h) Each Plan, including the trustee (the Trustee) of the BF V
Group Trust, receives the following written disclosures from the
General Partner with respect to its ongoing participation in the BF V
Group Trust and the Partnership:
(1) Within 90 days after the end of each fiscal year of the BF V
Group Trust as well as at the time of termination, an annual financial
report containing a balance sheet for the BF V Group Trust and the
Partnership as of the end of such fiscal year and a statement of
changes in the financial position for the fiscal year, as audited and
reported upon by independent, certified public accountants. The annual
reports will also disclose the remuneration that has accrued or is paid
to the General Partner;
(2) Within 60 days after the end of each quarter (except in the
last quarter) of each fiscal year of the Partnership and the BF V Group
Trust, an unaudited quarterly financial report consisting of at least a
balance sheet for the Partnership and the BF V Group Trust as of the
end of such quarter and a profit and loss statement for such quarter.
The quarterly report will also specify the remuneration that is
actually paid or accrued to the General Partner; and
(3) Such other written information as may be needed by the Plans
(including copies of the proposed exemption and grant notice describing
the exemptive relief provided herein).
[[Page 49020]]
(i) At least annually, the General Partner will hold a meeting of
the Partnership, at which time, the Independent Fiduciaries of the
participating Plans will have the opportunity to decide on whether the
Partnership, the BF V Group Trust, the Trustee or the General Partner
should be terminated as well discuss any aspect of the Partnership, the
BF V Group Trust and the agreements promulgated thereunder with the
General Partner.
(j) During each year of the BF V Group Trust and the Partnership,
representatives of the General Partner will be available to confer by
telephone or in person with independent Plan fiduciaries to discuss
matters concerning the BF V Group Trust or the Partnership.
(k) The terms of all transactions that are entered into on behalf
of the Partnership remain at least as favorable to a Plan investing in
the BF V Group Trust as those obtainable in arm's length transactions
with unrelated parties. In this regard, the valuation of assets in the
Partnership that is done in connection with the distribution of any
part of the General Partner's Performance Fee will be based upon
independent market quotations or (where the same are unavailable)
determinations made by an independent appraiser.
(l) In the case of the sale by the Partnership of Portfolio Company
securities to a party in interest with respect to a participating Plan
that occurs in connection with the acquisition of a Portfolio Company
represented in the Partnership's portfolio, the party in interest may
not be the General Partner, TBFC, any employer of a participating Plan,
or any affiliate thereof, and the Partnership receives the same terms
as is offered to other shareholders of a Portfolio Company.
(m) As to each Plan, the total fees paid to the General Partner and
its affiliates constitute no more than ``reasonable compensation''
within the meaning of section 408(b)(2) of the Act.
(n) Any increase in the General Partner's Performance Fee is based
upon a predetermined percentage of net realized gains minus net
unrealized losses determined annually between the date the first
contribution is made to the Partnership until the time the Partnership
disposes of its last investment. In this regard,
(1) Except as provided below in Section II(o), no part of the
General Partner's Performance Fee may be withdrawn before December 31,
2005, which represents the end of the Acquisition Phase (the
Acquisition Phase) for the Partnership, and not until the BF V Group
Trust has received distributions equal to 100 percent of its capital
contributions made to the Partnership;
(2) Prior to the termination of the Partnership, no more than 75
percent of the Performance Fee credited to the General Partner may be
withdrawn by the General Partner;
(3) The debit account established for the General Partner to
calculate the Performance Fee (the Performance Fee Account) is credited
annually with a predetermined percentage of net realized gains minus
net unrealized losses, minus Performance Fee distributions;
(4) No portion of the Performance Fee may be withdrawn if the
Performance Fee Account is in a deficit position; and
(5) The General Partner repays all deficits in its Performance Fee
Account and it maintains a 25 percent cushion in such account prior to
receiving any further distribution.
(o) During the Acquisition Phase of the Partnership only,
(1) The General Partner is entitled to take distributions with
respect to the Performance Fee in the amount of any income tax
liability it or its affiliates become subject to with respect to net
capital gains of the Partnership, provided such gains are based upon
the sale of Portfolio Company securities that is initiated by a third
party in connection with a merger, tender offer or acquisition, and
does not involve the exercise of discretion by the General Partner;
(2) The tax distributions are deducted from the Performance Fee;
(3) The General Partner repays to the Partnership any tax refund
received to the extent a distribution has been made to such General
Partner; and
(4) The General Partner provides the Trustee and the Plans with an
annual report and accounting of all distributions and repayments
attributable to income taxation of the General Partner and its
affiliates, including written evidence that the distributions have been
utilized exclusively to pay the income tax liability.
(p) The General Partner maintains, for a period of six years, the
records necessary to enable the persons described in paragraph (q) of
this Section II to determine whether the conditions of this exemption
have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the General
Partner, the records are lost or destroyed prior to the end of the six
year period; and
(2) No party in interest other than the General Partner shall be
subject to the civil penalty that may be assessed under section 502(i)
of the Act, or to the taxes imposed by section 4975(a) and (b) of the
Code, if the records are not maintained, or are not available for
examination as required by paragraph (q) below.
(q)(1) Except as provided in section (q)(2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (p) of this
Section II shall be unconditionally available at their customary
location during normal business hours by:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) Any Independent Fiduciary of a participating Plan or any duly
authorized representative of such Independent Fiduciary;
(C) Any contributing employer to any participating Plan or any duly
authorized employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(q)(2) None of the persons described above in subparagraphs (B)-(D)
of this paragraph shall be authorized to examine the trade secrets of
the General Partner or TBFC or commercial or financial information
which is privileged or confidential.
Section III. Definitions
For purposes of this exemption,
(a) The term ``TBFC'' means The Banc Funds Company and any
affiliate of TBFC as defined in paragraph (b) of Section III.
(b) An ``affiliate'' of TBFC includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with TBFC;
(2) Any officer, director or partner in such person; and
(3) Any corporation or partnership of which such person is an
officer, director or a 5 percent partner or owner.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) An ``Independent Fiduciary'' is a Plan fiduciary which is
independent of TBFC and its affiliates and is either a Plan
administrator, trustee, named fiduciary, as the recordholder of
beneficial Interests in the BF V Group Trust or an investment manager.
[[Page 49021]]
(e) The term ``Portfolio Companies'' include commercial banks and
other depository institutions such as savings banks, savings and loan
associations, holding companies controlling those entities, and
companies providing financial services in the United States, which
include, but are not limited to, consumer finance companies and
demutualizing life insurance companies.
(f) The term ``net realized gains'' refers to the excess of
realized gains over realized losses.
(g) The term ``net realized losses'' refers to the excess of
realized losses over realized gains.
(h) The term ``net unrealized losses'' refer to the excess of
unrealized losses over unrealized gains.
(i) The term ``net unrealized gains'' refers to the excess of
unrealized gains over unrealized losses. For a gain or loss to be
``realized,'' an asset of the Partnership must be sold for more than or
less than its acquisition price. For a gain or loss to be
``unrealized,'' the Partnership asset must increase or decrease in
value but not be sold.
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 May
23, 2000 at 65 FR 33360.
Effective Date: This exemption is effective as of July 15, 1998.
Written Comments
The Department received two written comments with respect to the
Notice and no requests for a public hearing. The comments, which were
submitted by TBFC, requested certain modifications to the Notice and
the Summary of Facts and Representations (the Summary). Discussed below
are TBFC's suggested changes to the Notice and the Summary, as well as
the Department's responses with respect thereto.
1. ``Effective'' Dates. TBFC has pointed out several discrepancies
in the anticipated term of BF V as well as during the period in which
the Performance Fee can typically be drawn. TBFC represents that the
scheduled termination date of the Partnership is December 31, 2007,
according to Section 9.02 of the Trust Agreement and Section 5 of the
Partnership Agreement. However, TBFC states that the Notice indicates
that the Partnership is scheduled to terminate on December 31, 2008 and
the Performance Fee draw down period is scheduled to occur during 2007
and 2008. Thus, TBFC explains that the dates contained in the Notice
are in arrears of the actual commencement, operation and termination of
the Partnership.
In this regard, TBFC states that examples of these date
discrepancies can be summarized in the following table:
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FR page no. Location Comment
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33362....................... Section II(n)(1).... Describes the
beginning of the
Performance Fee
draw down period
(i.e., the end of
the Acquisition
Phase) as being
after December 31,
2006 when it really
begins after
December 31, 2005.
33364....................... Summary, TBFC notes that the
Representation 6, expected
second paragraph, termination date of
second sentence. the Partnership is
correctly
identified as
December 31, 2007
here.
33365....................... Summary, Identifies the date
Representation 10, after which
third paragraph, Management Fees may
first sentence. be reduced (if
return of capital
has been
sufficient) as
December 31, 2006,
when the date is
December 31, 2005.
33366....................... Summary, Describes the
Representation beginning of the
11(c), first Performance Fee
sentence. draw down period as
January 1, 2007
when the actual
date is January 1,
2006.
33366....................... Summary, Describes the period
Representation 12, over which the
first paragraph, Performance Fee can
second sentence. be drawn as running
through 2007 and
2008, when the
actual years are
2006 and 2007.
33367....................... Summary, Identifies the
Representation 14, expected
first and second termination date of
sentences. the Partnership as
December 31, 2008
when the actual
date is December
31, 2007.
33370....................... Summary, Describes the
Representation Performance Fee
21(k)(1), second draw down period as
sentence. beginning after
December 31, 2006
when the actual
date is December
31, 2005.
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In response to this comment, the Department wishes to emphasize its
original understanding that TBFC would not organize the Partnership
until after the final exemption had been granted. Assuming the
Partnership had become operational then, there would be no
discrepancies in the dates for the general draw down periods for the
Performance Fee or the termination of the Partnership. Nevertheless,
the Department has noted the aforementioned changes to the operative
language of the Notice and the Summary. The Department has also
modified Section II(n)(1) of the final exemption to reflect the fact
that the Performance Fee can be drawn down after December 31, 2005.
At TBFC's request, the Department has also agreed to make the final
exemption retroactive to July 15, 1998. TBFC explains that this is the
date that the Partnership received its first cash contributions from
investors.
2. Other Clarifications. TBFC has identified a typographical error
on page 33364 of the Summary, in the fifth sentence of Footnote 6. In
this regard, TBFC explains that the reference should be to ``BF III''
and not to ``BF II.''
In addition, TBFC observes that on page 33366 of the Summary, the
word ``repay'' in Representation 11(f) should be substituted for the
word ``prepay'' in the sentence stating ``The General Partner must
prepay any deficit in the Performance Fee Account.''
In response to these comments, the Department has noted the
aforementioned clarifications to the Summary.
For further information regarding TBFC's comment letters and other
matters discussed herein, interested persons are encouraged to obtain
copies of the exemption application file (Exemption Application No. D-
10624) the Department is maintaining in this case. The complete
application file, as well as all supplemental submissions
[[Page 49022]]
received by the Department, are made available for public inspection in
the Public Documents Room of the Pension and Welfare Benefits
Administration, Room N-5638, U.S. Department of Labor, 200 Constitution
Avenue, NW, Washington, DC 20210.
Accordingly, after giving full consideration to the entire record,
including TBFC'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.)
Standard Insurance Company (Standard)
Located in Portland, OR
[Prohibited Transaction Exemption 2000-38; Exemption Application No. D-
10705]
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 April 21, 1999, to (1) the receipt of common stock (Stock) of
the StanCorp Financial Group, Inc. (the Holding Company), the parent of
Standard, or (2) the receipt of cash (Cash) or policy credits (Policy
Credits), by or on behalf of any eligible policyholder (the Eligible
Member) of Standard which is an employee benefit plan (the Plan),
including the Standard Group Life, Supplemental Life and AD&D Plan for
Employees and Agents and the Standard Group Term and Short Term
Disability Employees Plan (the Standard Welfare Plans), in exchange for
such Eligible Member's interest in Standard, in accordance with the
terms of a plan of demutualization (the Plan of Demutualization or
Demutualization Plan) adopted by Standard and implemented pursuant to
Chapter 732 of the Oregon Revised Statutes.\1\
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\1\ Unless otherwise noted, the client Plans and the Standard
Welfare Plans and other Plans sponsored by Standard and its
affiliates are collectively referred to as the Plans. In addition,
unless otherwise noted, the Standard Welfare Plans and other Plans
sponsored by Standard and its affiliates are together referred to as
the Standard Plans.
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In addition, the restrictions of section 406(a)(1)(E) and (a)(2)
and section 407(a)(2) of the Act shall not apply, effective April 21,
1999, to the receipt or holding by the Standard Welfare Plans, of
employer securities in the form of excess Holding Company Stock, in
accordance with the terms of the Demutualization Plan.
The exemptions described above are subject to the following
conditions:
(a) The Plan of Demutualization was implemented in accordance with
procedural and substantive safeguards that were imposed under Oregon
Insurance Law and was subject to review and supervision by the Director
of the Department of Consumer and Business Services of the State of
Oregon (the Director).
(b) The Director reviewed the terms of the options that were
provided to Eligible Members of Standard, which included, but were not
limited to the subject Plans, as part of his review of the
Demutualization Plan, and only approved such Demutualization Plan
following a determination that the Plan was fair and equitable to all
Eligible Members and was not detrimental to the public.
(c) Each Eligible Member had an opportunity to vote to approve the
Plan of Demutualization after full written disclosure was given to the
Eligible Member by Standard.
(d) One or more independent fiduciaries of a Plan that was an
Eligible Member received Holding Company Stock, Cash or Policy Credits,
pursuant to the terms of the Demutualization Plan, and neither Standard
nor any of its affiliates exercised any discretion or provided
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c), with
respect to such acquisition.
(e) With respect to the Standard Plans, where the consideration was
in the form of Holding Company Stock, Northwestern Trust and Advisory
Company, the independent Plan fiduciary appointed to represent the
interests of each of the Standard Plans,
(1) Exercised its authority and responsibility to vote on behalf of
the Standard Plans at the special meeting of Eligible Members on the
proposal to approve the Demutualization Plan;
(2) Monitored the Holding Company Stock received by a Standard
Plan; and
(3) Provided instructions with respect to the voting, the continued
holding and the disposition of Holding Company Stock held by all of the
Standard Plans.
(f) After each Eligible Member was allocated at least 52 shares of
Holding Company Stock, additional consideration was allocated to
Eligible Members who owned participating policies based on actuarial
formulas that took into account each participating policy's
contribution to the surplus of Standard which formulas have been
approved by the Director.
(g) All Eligible Members that were Plans participated in the
transactions on the same basis within their class groupings as other
Eligible Members that were not Plans.
(h) No Eligible Member paid any brokerage commissions or fees in
connection with the receipt of Holding Company Stock, nor has (or will)
such Eligible Member pay any brokerage commissions or fees in
connection with the implementation of the commission-free sales and
purchase program.
(i) All of Standard's policyholder obligations will remain in force
and will not be affected by the Plan of Demutualization.
Section II. Definitions
For purposes of this exemption:
(a) The term ``Standard'' means The Standard Insurance Company and
any affiliate of Standard as defined in paragraph (b) of this Section
II.
(b) An ``affiliate'' of Standard includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Standard; (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual.) and
(2) Any officer, director or partner in such person.
(c) The term ``Eligible Member'' means a policyholder who is
eligible to vote and to receive consideration under Standard's
Demutualization Plan. Such Eligible Member must have been a
policyholder of Standard on September 28, 1998, the date the Plan of
Demutualization was adopted by the Board of Directors of Standard.
(d) The term ``policy credit'' means an increase in the
accumulation account value \2\ (to which no surrender or similar
charges are applied) in the general account or an increase in a
dividend accumulation on a policy.
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\2\ In general, a policy's accumulation account value is
expressed in dollar terms and reflects contributions and interest
credited under the policy, less expenses and withdrawals.
Accumulation values may be applied for the purchase of annuity
benefits, or depending on the provisions of the contract, withdrawn
by the policyholder in a lump sum or installments. Under Standard's
Plan of Demutualization, where a policy eligible for distributions
under such Plan has an accumulation value, the policy's accumulation
value will be increased by an amount equal to the distribution the
policyholder is entitled to under the Plan.
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Effective Date: This exemption is effective as of April 21, 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
[[Page 49023]]
proposed exemption (the Notice) that was published on May 23, 2000 at
65 FR 33370.
Written Comments
The Department received one written comment with respect to the
Notice. The comment was submitted by Standard and it requested
clarification to the Notice and the Summary of Facts and
Representations (the Summary) of the Notice in certain areas. Discussed
below is Standard's comment letter and the Department's responses to
Standard's concerns.
1. Citation of Oregon Law. Standard represents that throughout the
Notice, the reader is cited to ``Section 732 of the Oregon Revised
Statutes.'' Unless a statutory number is included (e.g., 732.600),
Standard suggests that it is appropriate to cite to ``Chapter 732.''
In response to this comment, the Department has revised the
operative language of the Notice by substituting the word ``Chapter''
for the word ``Section'' in the reference to the Oregon Revised
Statutes. The Department also acknowledges corresponding modifications
to the Notice, on pages 33372 and 33373 of the Summary, in
Representations 8 and 9.
2. Relevant Dates. On page 33371 of the Notice, Section II of the
Definitions states, in pertinent part, that ``[s]uch Eligible Member
must have been a policyholder of Standard on December 17, 1997, the
date the Plan of Demutualization was adopted by the Board of Directors
of Standard.'' However, on page 33373 of the Summary, Representation 9
of the Notice indicates that December 17, 1998 was the day on which
``Standard's Board of Directors adopted the Demutalization Plan.''
Standard explains that December 17, 1997 was the date on which
Standard publicly announced its Board of Directors' intention to pursue
the Plan of Demutualization rather than December 17, 1998. In addition,
Standard indicates that the Plan of Demutualization was subsequently
adopted by its Board of Directors on September 28, 1998.
Finally, on page 33372 of the Summary, Representation 7 of the
Notice states that the Director approved the Plan of Demutualization in
January 1999. Standard wishes to clarify that the Plan was approved on
February 12, 1999.
In response to these comments, the Department has revised Section
II(c) of the Definitions to reflect the September 28, 1998 adoption
date of Standard's Plan of Demutualization by its Board of Directors
and acknowledges this change in Representation 9 of the Summary. In
addition, the Department notes the February 12, 1999 approval date of
Standard's Plan of Demutualization in Representation 7 of the Summary.
3. Number of Outstanding Policies. On page 33371 of the Notice,
Representation 1 of the Summary discusses, in the fourth paragraph, the
number of outstanding policies that were subject to provisions of the
Act. Standard notes that the figures provided were only its preliminary
estimates rather than final figures. After cross-checking and
eliminating duplicate entries, Standard represents that approximately
27,600 of its policies were issued to pension plans or welfare plans
that were governed by the Act. Of these policies, approximately 4,600
covered pension plans and 23,000 covered welfare benefit plans. In
addition, Standard states that the same paragraph contains a reference
to ``group health'' plans which are included within the ``welfare
plan'' category. Standard wishes to point out that it does not issue a
group health plan.
The Department notes the foregoing clarifications to Representation
1 of the Summary.
4. Ownership of Standard's Affiliates. On page 33371 of the Notice,
Representation 3 of the Summary indicates that the assets of Standard
Mortgage Investors and Standard Real Estate Investors are owned
completely by Standard through Standard Management. For purposes of
clarification, Standard represents that as of the effective date of the
demutualization (i.e., April 21, 1999), Standard Mortgage Investors and
Standard Real Estate Investors were purchased by StanCorp Financial
Group, the Holding Company. Therefore, Standard explains that these
entities are currently owned by the Holding Company.
Similarly, on page 33371 of the Summary, Representation 3 states
that Standard, through Standard Management, Inc., owns 100 percent of
several named subsidiaries. As of the effective date of the Plan of
Demutualization, Standard states that it sold Standard Management, Inc.
and its subsidiaries to the Holding Company. Therefore, as of that date
and currently, Standard indicates that the Holding Company owns 100
percent of Standard Management, Inc. and its subsidiaries.
In response to these comments, the Department acknowledges the
foregoing clarifications to Representation 3 of the Summary.
5. Policyholder Consideration. On page 33373 of the Notice,
Representation 9 of the Summary lists the Standard policyholders who
were entitled to receive Cash in lieu of Stock. In addition to this
list, Standard explains that public entities, such as States and their
political subdivisions, also received Cash in lieu of Stock because of
potential State constitutional and statutory restrictions on such
entities receiving and owning Stock.
However, Standard asserts that on page 33373 of the Notice, the
third paragraph of Representation 10 states that ``The decision to
receive Holding Company Stock, Cash or Policy Credits by a Plan was
made by one or more fiduciaries of such Plan which was independent of
Standard and its affiliates.'' Standard represents that the decision
regarding which policyholders would receive Stock, Cash or Policy
Credits was determined by the Plan of Demutualization, as approved by
the Director, except for those policyholders who received 99 or less
shares or Stock, in which case the Plan fiduciary made the election to
receive Cash or Stock.
The Department acknowledges this comment and is aware that
Standard's Plan of Demutualization essentially governed the form of
consideration that was distributed to an Eligible Member and that,
except in limited instances, the Eligible Member had no choice in the
allocation process. However, the Department believes that the sentence
should be read in conjunction with the next sentence in the paragraph
which states, in part, that ``* * * neither Standard nor any of its
affiliates exercised discretion or provided `investment advice' within
the meaning of 29 CFR 2510.3-21(c), with respect to such acquisition.''
If read in this manner, the Department wishes to emphasize that the
primary thrust of both sentences is the notion that Standard did not,
in any way, influence or advise an independent Plan fiduciary to accept
whatever form of consideration that was allocated to such Eligible
Member.
For further information regarding Standard's comment letter and
other matters discussed herein, interested persons are encouraged to
obtain copies of the exemption application files [Exemption Application
Nos. D-10705 and D-10604] the Department is maintaining in this case.
The complete application file, as well as all supplemental submissions
received by the Department, are made available for public inspection in
the Public Documents Room of the Pension and Welfare Benefits
Administration, Room N-5638, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210.
[[Page 49024]]
Accordingly, after giving full consideration to the entire record,
including Standard's written comment, 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.)
Standard & Poor's (S&P), Standard and Poor's Investment Advisory
Services, LLC (SPIAS)
Located in New York, New York
[Prohibited Transaction Exemption 2000-39; Exemption Application No. D-
10720]
Exemption
The restrictions of sections 406(a) and 406(b) 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 (F) of the Code, shall not
apply to the provision of asset allocation services (the Service) by
SPIAS to Plan participants and the receipt of fees by SPIAS from
Service Providers in connection with the provision of such asset
allocation services, provided that the following conditions are met.
I. General Conditions
A. The retention of SPIAS to provide the Service will be expressly
authorized in writing by an Independent Fiduciary of each Plan.
B. SPIAS shall provide the Independent Fiduciary of each Plan with
the following, in writing:
(1) Prior to authorization, a complete description of the Service
and disclosures of all fees and expenses associated with the Service.
(2) Any other reasonably available information regarding the
Service that the Independent Fiduciary requests.
(3) A contract for the provision of the Service which defines the
relationship between SPIAS, the Service Providers and the Plan sponsor,
and the obligations thereunder. Such contract shall be accompanied by a
termination form with instructions on the use of the form. The
termination form must expressly state that a Plan may terminate its
participation in the Service without penalty at any time. However, a
Plan which terminates its participation in the Service before the
expiration of the contract will pay its pro-rata share of the fees that
it would otherwise owe for the Service under the contract and, if
applicable, any direct costs actually incurred by SPIAS which would
have been recovered from the Plan but for the termination of the
contract, including any direct setup expenses not previously recovered.
Thereafter, the termination form shall be provided no less than
annually.
(4) At least 45-days prior to the implementation of any material
change to the Service or increase in fees or expenses charged for the
Service, notification of the change and an explanation of the nature
and the amount of the change in the Service or increase in fees or
expenses.
(5) A copy of the proposed and final exemption, as published in the
Federal Register.
(6) An annual report of Plan activity which summarizes the
performance of the asset allocation categories provided to the Plan and
provides a breakdown of all fees and expenses paid to SPIAS in
connection with the provision of the Service to the Plan for the year.
Such report shall be provided no more than 45 days after the period to
which it relates. Upon the Independent Fiduciary's or Plan sponsor's
request, such report may be provided more frequently.
C. SPIAS will provide each Plan participant with the following:
(1) Written notice that the Service is available and provided by
SPIAS, an entity independent of the Service Provider and the Plan
sponsor.
(2) Prior to using the Service, full written disclosures that will
include information about SPIAS and a description of the Service.
(3) Access to SPIAS's website or paper-based communications which
will clearly indicate that the Plan participant is receiving the
Service from SPIAS, and that SPIAS is independent of the Service
Provider.
(4) A risk tolerance questionnaire which must be completed prior to
utilization of the Service.
D. Any investment advice given to a Plan participant by SPIAS under
the Service will be based solely on the responses provided by the Plan
participant through the Service's interactive computer program or
through a paper or telephone interview and will be based on the
application of an objective methodology developed by S&P Financial
Information Service (S&P FIS) and the S&P Investment Committee.
E. Any investment advice given to a Plan participant will be
implemented only at the express direction of the Plan participant.
F. The total fees paid to SPIAS and a Service Provider, in
connection with the provision of the Service, by each Plan does not
exceed ``reasonable compensation'' within the meaning of section
408(b)(2) of the Act.
G. The only fees which are payable to SPIAS in connection with the
provision of the Service include, subject to negotiation, one or more
of the following:
(1) An annual flat fee based on a fixed dollar amount per Plan
participant for the Service. This fee may be paid by the Plan, Plan
sponsor, Plan participant or the Service Provider.
(2) A technology licensing fee payable by the Service Provider in
the first year that the Service is provided to a Plan. The fee will be
a fixed dollar amount based on the number of Plan participants and
beneficiaries contained on the Service Provider's record-keeping
system. Each time the number of Plan participants and beneficiaries on
the Service Provider's record-keeping system increases by 10%, an
additional fixed dollar amount based on the increase in Plan
participants and beneficiaries will be assessed and charged to the
Service Provider for the new participants and beneficiaries (the
Revised Technology Fee).
(3) For subsequent years, SPIAS will charge the Service Provider an
annual technology maintenance fee equal to 20% of the technology
licensing fee charged to the Service Provider in the first year plus
20% of the Revised Technology Fee.
(4) SPIAS will charge the Plan or Plan sponsor an Internet
customization fee where a Plan sponsor contracts directly with SPIAS
for the provision of the Service. This flat fee will be based on the
time spent by SPIAS personnel on its customization of the Service for
the particular Plan.
(5) For those Plan sponsors electing to receive a Plan analysis
report, an annual flat fee based on a fixed dollar amount per Plan
investment analysis report. This fee will be paid by the Plan sponsor
or Service Provider.
H. No portion of any fee or other consideration payable by the
Plans or the Plan sponsor to S&P or SPIAS in connection with the
Service will be received or shared with a Service Provider.
I. Neither the fees charged nor the compensation received by SPIAS
will be affected by the investment elections or the decisions made by
the Plan participants and beneficiaries regarding investment of the
assets in their accounts.
J. Each Service Provider shall represent to SPIAS that it will not
impose any additional fees and/or charges (relating to the investment
products made available to Plans) on Plans who contract for the Service
unless such fees and charges are imposed on the Service Provider's
[[Page 49025]]
similarly situated clients who do not contract for the Service.
K. All asset allocations are reviewed and approved by the S&P
Investment Policy Committee (IPC) before they are made available to the
Plan.
L. No Service Provider will at any time own any interest, by vote
or value in SPIAS, and neither SPIAS nor any affiliates will own any
interest, by vote or value in a Service Provider.
M. The annual revenues derived by SPIAS from any one Service
Provider shall not constitute more than 5% of the annual revenues of
S&P FIS.
N. S&P will guarantee the payment of any liabilities of SPIAS that
may arise by reason of a breach of a fiduciary duty described in
section 404 of the Act or a violation of the prohibited transaction
provisions in section 406 of the Act and 4975 of the Code.
O. SPIAS will maintain for a period of six years, the records
necessary to enable the persons described in paragraph (P) of this
section to determine whether the conditions of the exemption are met,
including records of the recommendations made to Plan participants and
beneficiaries, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of SPIAS, the
records are lost or destroyed prior to the end of the six year period.
(2) No party in interest, other than SPIAS shall be subject to the
civil penalty that may be assessed under section 502 (i) of the Act, or
the taxes imposed by section 4975(a) and (b) of the Code if records are
not maintained or not available for examination as required by this
paragraph and paragraph P(1) below.
P. (1) Except as provided in subparagraph (2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of Section
504 of the Act, the records referred to paragraph (O) of this section
are unconditionally available at their customary location for
examination during normal business hours by--
(a) Any duly authorized employee or representative of the
Department of Labor, the Internal Revenue Service, or the Securities
and Exchange Commission;
(b) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(c) Any contributing employer to any participating Plan, any duly
authorized representative of such employer or an employee organization
whose members are participants and beneficiaries of a participating
Plan; or (d) Any Plan participant or beneficiary of any participating
Plan or any duly authorized representative of such Plan participant or
beneficiary.
(2) None of the persons described in paragraph (1)(b)-(d) of this
paragraph (P) shall be authorized to examine trade secrets of SPIAS, or
commercial or financial information which is privileged or
confidential.
II. Definitions
A. The term ``Service'' means the asset allocation service provided
by SPIAS to Plans which is accessed through computer software and other
written communications in order to provide personalized recommendations
to Plan participants regarding the allocation of their investments
among the options offered under their Plan.
B. The term ``Service Provider'' means an entity that has been in
the financial services business for at least three years, and during
such period, has not been convicted of a felony offense involving abuse
or misuse of such entity's employee benefit plan position or
employment, or any felony arising out of the conduct of the business of
a broker, dealer, investment adviser, bank, insurance company or
fiduciary. Such entity is also described in one of the following
categories:
1. A bank, savings and loan association, insurance company or
registered investment adviser which meets the definition of a
``qualified professional asset manager'' (QPAM) set forth in section
V(a) of Prohibited Transaction Exemption 84-14 (49 FR 9494 (Mar. 13,
1984), as corrected at 50 FR 41430 (Oct. 10, 1985)) and in addition,
has, as of the last day of its most recent fiscal year, total client
assets under management and control in an amount not less than $250
million; or
2. A broker dealer registered under the Securities Exchange Act of
1934, which has, as of the last day of its most recent fiscal year, $1
million in shareholders' or partners' equity, and total client assets
under management and control in an amount not less than $250 million.
C. The term ``Independent Fiduciary'' means a Plan fiduciary which
is independent of SPIAS and its affiliates and independent of the
Service Provider and its affiliates.
D. The term ``affiliate'' means:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, relative of, or partner in any such
person; and
(3) Any corporation or partnership, of which such person is an
officer, director or partner.
E. The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
F. The term ``Plan'' means an employee pension benefit plan as
defined in section 3(2) of the Act.
Effective Date: This exemption is effective for transactions
occurring on or after March 22, 2000.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published at 65 FR 15360 (March 22,
2000.)
Written Comments
The Department received four comments from interested persons
regarding the notice of proposed exemption (the Notice).
One commentator urged the Department to clarify that the relief
provided by the exemption and the conditions of the exemption granted
herein applies only to SPIAS's asset allocation services, and that the
issuance of the exemption does not constitute an endorsement of the
SPIAS program. The Department concurs with the commentator and directs
the commentator to the Department's exemption procedures set forth in
29 CFR Part 2570, (55 FR 32836, August 10, 1990). Specifically,
sections 2570.49 (b) and (c) state that an exemption is effective only
under the conditions set forth in the exemption and only the specific
parties to whom an exemption grants relief may rely on the exemption.
The Department also notes that the exemption process provides relief
from the prohibited transaction provisions of the Act, but not from the
Act's general fiduciary responsibility provisions. Thus, the granting
of this exemption should not be interpreted as an endorsement by the
Department of the investment program described therein.
The commentator also asked the Department to clarify that the
standards and conditions of the exemption are not intended to be
exclusive standards to be applied in all future exemptions relating to
participant investment advisory programs. A second commentator
expressed concern that the conditions set forth in this exemption are
too restrictive allowing only a narrow range of financial institutions,
service providers and plans to provide investment advisory services to
Plan participants. This commentator requested that the Department issue
a
[[Page 49026]]
class exemption which would provide relief for a broad range of
investment advisory programs. The Department recognizes that there are
many participant investment advisory programs and that these programs
are structured in a variety of different ways. Some of these programs
may not require exemptions from the self-dealing and conflict of
interest provisions contained in the Act.\3\ The Department wishes to
emphasize that, the granting of this exemption does not foreclose
future consideration of a class exemption, or other individual
exemptions that may be issued for participant investment advisory
programs that would be subject to protective conditions that may differ
from those set forth in this exemption.
---------------------------------------------------------------------------
\3\ The Department notes that section 408(b)(2) of the Act
exempts from the prohibitions of section 406(a) of the Act any
reasonable arrangement for the provision of necessary service to a
plan. However, that statutory exemption does not provide relief from
the prohibitions described in section 406(b) of the Act. See 29 CFR
2550.408b-2(a).
---------------------------------------------------------------------------
One of the commentators requested that the Department modify the
description of the covered transaction to limit relief to the receipt
of fees. Accordingly, the commentator suggested changing the final
exemption to read as follows: ``The restrictions of section 406(b)of
the Act and the sanctions resulting from the application of section
4975 of the Code by reason of section 4975(c)(1)(E) and (F) of the
Code, shall not apply to the receipt of fees by SPIAS as a result of
the provision of advice in connection with Plan investments under the
Program.'' The Department has determined not to modify the final
exemption as requested by the commentator.
A commentator expressed concern that the record-keeping
requirements of the exemption set forth in section I(P) might permit
S&P to refuse to make available necessary information to Plan
fiduciaries on the basis that such information would disclose trade
secrets or commercial or financial information which is privileged or
confidential. The commentator suggests that the exemption require that
the Plan fiduciary be provided with otherwise protected information to
the extent that it is necessary or appropriate for the fiduciary to
fully understand the methodology underlying the Service. To the extent
that SPIAS is unwilling to disclose information or materials that the
Independent Fiduciary believes is necessary to fulfill its duty to
prudently select and/or monitor SPIAS, that fiduciary is under no
obligation to select or otherwise retain SPIAS to provide asset
allocation services. The Department does not believe that the
information required by a Plan fiduciary to perform its
responsibilities to the Plan will necessarily involve trade secrets or
commercial or financial information which is privileged or
confidential. Accordingly, the Department has determined not modify the
exemption as requested.
The fourth comment was from S&P (the Applicant).
1. Effective Date. S&P requested that the effective date of the
exemption be made retroactive to the date of publication of the
proposed exemption in the Federal Register. The Department concurs and
has made the final exemption effective as of March 22, 2000.
2. Successors and Affiliates of SPIAS. The Applicant urged the
Department to expand the exemption to include future successors to, and
affiliates of, SPIAS to account for the possibility of corporate
reorganization. The Department believes that it is inappropriate to
extend relief to parties who are currently unidentified or not
ascertainable. However, the Department notes that if SPIAS is the
subject of a corporate reorganization, SPIAS may, if necessary, apply
for an amendment to this exemption.
3. Section 408(b)(2) of ERISA. On page 15363 of the Notice,
footnote 2 stated:
The provision of investment advisory services to plans would be
exempt from the prohibitions of section 406(a) of ERISA if the
conditions of section 408(b)(2) are met. Section 2550.408b-2(a) of
the Department's regulations provides that section 408(b)(2) of the
Act exempts from the prohibitions of section 406(a), payment by a
plan to a party in interest, including a fiduciary for * * * any
service (or combination of services) if (1) such * * * service is
necessary for the establishment or operation of the plan; (2) such *
* * service is furnished under a contract or arrangement which is
reasonable; and (3) no more than reasonable compensation is paid for
such * * * service. The regulation also provides that section
408(b)(2) does not contain an exemption from acts described in
section 406(b) even if such act occurs in connection with a
provision of services that is exempt under section 408(b)(2).
Section 2550.408b-2(e)(1) further provides that a fiduciary does not
engage in an act described in section 406(b)(1) of the Act if the
fiduciary does not use any of the authority, control or
responsibility which makes such person a fiduciary to cause the plan
to pay additional fees for a service furnished by such fiduciary or
to pay a fee for a service furnished by a person in which the
fiduciary has an interest which may affect the exercise of such
fiduciary's best judgement as a fiduciary. In general, whether a
violation of section 406(b) occurs during the operation of an
investment advisory program is an inherently factual matter. See
Advisory Opinion 84-04 (January 4, 1984).
The Applicant asked the Department to make a finding that, based on
the facts and representations in the Notice, the conditions of section
408(b)(2) are satisfied with respect to those situations in which fees
for the Service are paid by the Plan sponsor or the Plan. The
Department notes that whether the conditions of section 408(b)(2) of
ERISA have been met in each case is inherently factual in nature.
Therefore the appropriate plan fiduciaries must determine, based upon
all of the relevant facts and circumstances surrounding each investment
advisory program, whether the conditions of section 408(b)(2) are
satisfied.
4. Periodic Reporting. Section I(B)(6) of the Notice stated in
part, that SPIAS shall provide the Independent Fiduciary of each Plan
with ``An annual report of Plan activity which summarizes the
performance of the Service and asset allocation recommendations and
provides a breakdown of all fees and expenses paid by the Plan and
participants for the year.'' The Applicant requested clarification that
the summary of the performance of the Service relates to the
performance of the asset allocation categories provided to the Plan,
and suggested the following language: ``An annual report which
summarizes the performance of asset allocation categories provided to
the Plan (not including the performance of individual participant
accounts) and provides a breakdown of all fees and expenses paid to
SPIAS by the Plan or participants for the Service for the year. Such
reports shall be provided no more than 45 days after the period to
which it relates. Upon the Independent Fiduciary's or the Plan
sponsor's request, such report may be provided more frequently.'' The
Department concurs with the Applicant and has clarified the condition
accordingly.
In addition, the Applicant requested that the Department clarify
that this condition refers to the fees paid to SPIAS by the Plan and
the Plan sponsor. In response to the comment, the Department has
determined to clarify this condition under the final exemption.
Accordingly, for purposes of I(B)(6), the annual report must disclose a
breakdown of all fees and expenses paid to SPIAS in connection with the
provision of the Service to participants under the Plan. The Department
believes that disclosure of all fees recovered by SPIAS from all
sources in connection with the provision of the Service to a particular
Plan, will assist the Independent Fiduciary evaluate the reasonableness
of the arrangement.
5. Dealings Between a Service Provider and Plans. Section I(J)
stated
[[Page 49027]]
that ``All dealings between the Service Provider and the Plans
participating in the Service are on a basis no less favorable to the
Plans than dealings with other investors of the Service Provider.'' The
Applicant represents that Plans are clients of a Service Provider and
not necessarily investors of the Service Provider, except to the extent
that Plans are shareholders of a mutual fund advised or administered by
an affiliate of a Service Provider. SPIAS has no control over any
Service Provider's dealings with any Plan. The Applicant requests that
I(J) be deleted. The Department is not persuaded by the argument
submitted in favor of deletion of this condition. The Department
believes that this condition is necessary to assure that plans that
contract with SPIAS pay no more for investment products than other
clients of a Service Provider who do not participate in the Service.
The Department notes, however, that this condition does not preclude
Service Providers from charging fees related to a Plan's participation
in the Service provided that the amount of the fees and the services to
which the fees relate have been previously disclosed to, and approved
by the Plan. Thus, in response to the comment, the Department has
modified I(J) as follows: ``Each Service Provider shall represent to
SPIAS that it will not impose any additional fees and/or charges
(relating to the investment products made available to Plans) on Plans
who contract for the Service unless such fees and charges are imposed
on a Service Providers's similarly situated clients who do not contract
for the Service.''
6. Records. Section I(O) provides in part, that SPIAS ``will
maintain for a period of six years, the records necessary to enable
persons described in paragraph (P) of this section to determine whether
the conditions of the exemption are met, including records of the
recommendations made to the Plan participants and beneficiaries and
their investment choices * * *'' The Applicant urges the Department to
delete the requirement regarding maintenance of records relating to
participant and beneficiary investment choices because S&P and SPIAS
will have no practical way of tracking the actual investment choices of
participants or tracking whether a participant actually used the
advice. Further, if the Service is not provided through the Internet,
there is no electronic record linking the advice to investment actions
of the participant. The Department concurs with the comment and has
deleted the requirement to retain records of participant investment
choices.
7. Definition of Service Provider. Section II(B) defines the term
``Service Provider'' as
``an entity that has been in the financial services business for at
least three years, and during such period, has not been found liable
or guilty by a court of law, or has not been a party to a settlement
agreement with the IRS or the Department related to any matter
concerning an employee benefit plan, and which is described in one
of the following categories:
1. A bank, savings and loan association, insurance company or
registered investment adviser which meets the definition of a
``qualified professional asset manager (QPAM) set forth in section
V(a) of Prohibited Transaction Exemption 84-14 (49 Fed. Reg. 9494
(Mar. 13, 1984), as corrected at 50 Fed. Reg. 41430 (Oct. 10, 1985)
and in addition, has, as of the last day of its most recent fiscal
year, total client assets under management and control in an amount
not less than $250 million; or
2. A broker dealer registered under the Securities Exchange Act
of 1934, which has, as of the last day of its most recent fiscal
year, $1 million in shareholders' or partners' equity, and total
client assets under management and control in an amount not less
than $250 million.
In its application, the Applicant requested that the definition of
Service Provider include third-party record-keeping firms. The
Applicant requested that the Department reconsider its decision not to
include third-party record-keeping firms in the definition of ``Service
Provider.'' The Applicant asserted that the criteria outlined in its
application and subsequent submission provided adequate safeguards to
limit coverage of the exemption to a small number of very substantial
and reputable organizations. The Department is unable to conclude that
the limitations suggested by the Applicant provide suitable protections
to employee benefit plans participating in the Service Accordingly, the
Department has not included third-party record-keeping firms in the
definition of ``Service Provider.''
In addition, the Applicant urged the Department to modify section
II(B) with respect to the requirement that a Service Provider not have
been a party to a settlement agreement with the Department or the IRS
related to any matter concerning an employee benefit plan. The
Applicant was concerned that this language would exclude many Service
Providers which have utilized various voluntary settlement programs at
the Department or the IRS. The Department concurs and has modified the
definition to read as follows: ``The term `Service Provider' means an
entity that has been in the financial services business for at least
three years, and during such period, has not been convicted of a felony
offense involving abuse or misuse of such entity's employee benefit
plan position or employment, or any felony arising out of the conduct
of the business of a broker, dealer, investment adviser, bank,
insurance company or fiduciary.
8. Definition of Plan. At the request of the Applicant, the
Department has added section II(F) to the final exemption which defines
the term ``plan'' to mean ``an employee pension benefit plan described
in section 3(2) of the Act.''
9. Definition of Affiliate. Section II(D) defines the term
``affiliate'' to include:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person and
(3) Any corporation or partnership of which such person is an
officer, director partner or employee.
The Applicant requested that the Department clarify that it did not
intend the definition to encompass stock ownership of public companies
by employees regardless of how de minimis or indirect. Accordingly, the
Applicant suggested that the Department delete employees. The
Department has modified the definition of affiliate to delete
``employees.''
10. Miscellaneous. (a) Page 15364 of the Notice, Representation No.
7 described how plan participants could access the Service and the form
of the risk tolerance questionnaire. The Applicant noted that S&P
expects that, depending on a client's particular situation, the risk
tolerance questionnaire may change and the number of asset allocation
investment recommendations will vary. Thus, the Applicant requested the
following changes be made to the Summary of Facts and Representations
of the Notice:
(i) The third sentence of the second paragraph of paragraph No.
7 stated that ``A Plan participant will answer a questionnaire which
consists of ten to fifteen questions with three or four multiple
choice answers per question.'' The Applicant would like the phrase,
``in its current form'' added following the words, ``questionnaire
which'';
(ii) In paragraph No. 7, The third sentence of the fourth
paragraph stated ``Based on the score, the Plan participant is
categorized into one of six investment recommendations.'' The
Applicant asked that the phrase ``or more'' be added after the word
``six'';
(iii) Footnote 3 read, ``Each participant who completes the
risk-tolerance questionnaire will be categorized, based on his/her
score, into one of these six recommendations as discussed in
paragraph
[[Page 49028]]
no. 7.'' The Applicant requested that the word ``six'' be deleted.
(iv) In the first sentence of the fifth paragraph of Paragraph
no. 7, it is stated that ``The advice provided to a Plan participant
through the Service may only be implemented if it is expressly
authorized in writing by the Plan participant.'' The applicant asked
that the words ``in writing'' be removed because the Service may not
be provided in the paper-based form, but rather by telephone or over
the by Internet.
The Department has made the above described revisions.
(b) Lastly, The Applicant would like to note that S&P and SPIAS may
be required to make payments to Service Providers for costs incurred in
connection with the establishment, implementation and maintenance of
the Service.
FOR FURTHER INFORMATION CONTACT: Allison Padams Lavigne, U.S.
Department of Labor, (202) 219-8971. (This is not a toll free number.)
Washington County Hospital Association Employees' Cash Balance Plan
(the Plan)
Located in Hagerstown, Maryland
[Prohibited Transaction Exemption 2000-40; Exemption Application No. D-
10839]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the past contribution by Washington County Hospital
Association 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.
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 June 13, 2000 at 65 FR
37182.
Effetive Date: This exemption is effective June 18, 1998.
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 to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 4th day of August, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 00-20208 Filed 8-9-00; 8:45 am]
BILLING CODE 4510-29-P
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