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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; American Express Financial Corporation (AEFC) [Notices] [02/14/2001]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; American Express Financial Corporation (AEFC) [02/14/2001]

[PDF Version]

Volume 66, Number 31, Page 10323-10330


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2001-07; Exemption Application No. D-
10855, et al.]

 
Grant of Individual Exemptions; American Express Financial 
Corporation (AEFC)

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 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.

American Express Financial Corporation (AEFC) Located in 
Minneapolis, MN; Exemption

[Prohibited Transaction Exemption 2001-07; Exemption Application No. D-
10855]

Section I. Exemption for the Acquisition, Holding and Disposition of 
American Express Company Stock

    The restrictions of sections 406(a)(1)(D), 406(b)(1) and section 
406(b)(2) of the Act, section 8477(c)(2)(A) and (B) of the Federal 
Employees Retirement System Act, and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(D) and (E) of the Code, shall not apply to the acquisition, 
holding and disposition of the common stock of American Express Company 
or its current and future affiliates (AE Stock) by Index and Model-
Driven Funds (collectively, the Funds) that are managed by AEFC and its 
affiliates [as defined in Section III(g)(1)], provided that the 
following conditions and the General Conditions of Section II are met:
    (a) The acquisition or disposition of AE Stock is for the sole 
purpose of maintaining strict quantitative conformity with the relevant 
index upon which the Index or Model-Driven Fund is based, and does not 
involve any agreement, arrangement or understanding regarding the 
design or operation of the Fund acquiring the AE Stock which is 
intended to benefit AEFC or any party in which AEFC may have an 
interest.
    (b) Whenever AE Stock is initially added to an index on which an 
Index or Model-Driven Fund is based, or initially added to the 
portfolio of an Index or Model-Driven Fund, all acquisitions of AE 
Stock necessary to bring the Fund's holdings of such Stock either to 
its capitalization-weighted or other specified composition in the 
relevant index, as determined by the independent organization 
maintaining such index, or to its correct weighting as determined by 
the model which has been used to transform the index, occur in the 
following manner:
    (1) Purchases are from, or through, only one broker or dealer on a 
single trading day;
    (2) Based on the best available information, purchases are not the 
opening transaction for the trading day;

[[Page 10324]]

    (3) Purchases are not effected in the last half hour before the 
scheduled close of the trading day;
    (4) Purchases are at a price that is not higher than the lowest 
current independent offer quotation, determined on the basis of 
reasonable inquiry from non-affiliated brokers;
    (5) Aggregate daily purchases do not exceed 15 percent of the 
average daily trading volume for the security, as determined by the 
greater of either (i) the trading volume for the security occurring on 
the applicable exchange and automated trading system on the date of the 
transaction, or (ii) an aggregate average daily trading volume for the 
security occurring on the applicable exchange and automated trading 
system for the previous five (5) business days, both based on the best 
information reasonably available at the time of the transaction;
    (6) All purchases and sales of AE Stock occur either (i) on a 
recognized U.S. securities exchange (as defined in Section III(j) 
below), (ii) through an automated trading system (as defined in Section 
III(i) below) operated by a broker-dealer independent of AEFC that is 
registered under the Securities Exchange Act of 1934 (the '34 Act), and 
thereby subject to regulation by the Securities and Exchange Commission 
(SEC), which provides a mechanism for customer orders to be matched on 
an anonymous basis without the participation of a broker-dealer, or 
(iii) through an automated trading system (as defined in Section III(i) 
below) that is operated by a recognized U.S. securities exchange (as 
defined in Section III(j) below), pursuant to the applicable securities 
laws, and provides a mechanism for customer orders to be matched on an 
anonymous basis without the participation of a broker-dealer; and
    (7) If the necessary number of shares of AE Stock cannot be 
acquired within 10 business days from the date of the event which 
causes the particular Fund to require AE Stock, AEFC appoints a 
fiduciary which is independent of AEFC to design acquisition procedures 
and monitor compliance with such procedures.
    (c) Subsequent to acquisitions necessary to bring a Fund's holdings 
of AE Stock to its specified weighting in the index or model pursuant 
to the restrictions described in paragraph (b) above, all aggregate 
daily purchases of AE Stock by the Funds do not exceed on any 
particular day the greater of:
    (1) 15 percent of the average daily trading volume for the AE Stock 
occurring on the applicable exchange and automated trading system (as 
defined below) for the previous five (5) business days, or
    (2) 15 percent of the trading volume for AE Stock occurring on the 
applicable exchange and automated trading system (as defined below) on 
the date of the transaction, as determined by the best available 
information for the trades that occurred on such date.
    (d) All transactions in AE Stock not otherwise described in 
paragraph (b) above are either: (i) Entered into on a principal basis 
in a direct, arms-length transaction with a broker-dealer, in the 
ordinary course of its business, where such broker-dealer is 
independent of AEFC and is registered under the '34 Act, and thereby 
subject to regulation by the SEC, (ii) effected on an automated trading 
system (as defined in Section III(i) below) operated by a broker-dealer 
independent of AEFC that is subject to regulation by either the SEC or 
another applicable regulatory authority, or an automated trading system 
operated by a recognized U.S. securities exchange (as defined in 
Section III(j) below) which, in either case, provides a mechanism for 
customer orders to be matched on an anonymous basis without the 
participation of a broker-dealer, or (iii) effected through a 
recognized U.S. securities exchange (as defined in Section III(j) 
below) so long as the broker is acting on an agency basis.
    (e) No transactions by a Fund involve purchases from, or sales to, 
AEFC (including officers, directors, or employees thereof), or any 
party in interest that is a fiduciary with discretion to invest plan 
assets into the Fund (unless the transaction by the Fund with such 
party in interest would otherwise be subject to an exemption).
    (f) No more than five (5) percent of the total amount of AE Stock, 
that is issued and outstanding at any time, is held in the aggregate by 
Index and Model-Driven Funds managed by AEFC.
    (g) AE Stock constitutes no more than five (5) percent of any 
independent third party index on which the investments of an Index or 
Model-Driven Fund are based.
    (h) A plan fiduciary independent of AEFC authorizes the investment 
of such plan's assets in an Index or Model-Driven Fund which purchases 
and/or holds AE Stock, other than in the case of an employee benefit 
plan sponsored or maintained by AEFC for its own employees (an AEFC 
Plan), pursuant to the procedures described herein.
    (i) A fiduciary independent of the AEFC directs the voting of the 
AE Stock held by an Index or Model-Driven Fund on any matter in which 
shareholders of AE Stock are required or permitted to vote.
    (j) No more than ten (10) percent of the assets of any Fund that 
acquires and holds AE Stock is comprised of any AEFC Plan(s) for which 
AEFC exercises investment discretion.

Section II. General Conditions

    (a) AEFC maintains or causes to be maintained for a period of six 
years from the date of the transaction the records necessary to enable 
the persons described in paragraph (b) of this Section 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 AEFC, the records are lost 
or destroyed prior to the end of the six year period, and (2) no party 
in interest other than AEFC 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 (b) below.
    (b)(1) Except as provided in paragraph (b)(2) and notwithstanding 
any provisions of section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (a) 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 or the Internal Revenue Service,
    (B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of 
the plan, or any duly authorized employee or representative of such 
fiduciary,
    (C) Any contributing employer to any plan participating in an Index 
or Model-Driven Fund or any duly authorized employee or representative 
of such employer, and
    (D) Any participant or beneficiary of any plan participating in an 
Index or Model-Driven Fund, or a representative of such participant or 
beneficiary.
    (2) None of the persons described in subparagraphs (B) through (D) 
of this paragraph II(b) shall be authorized to examine trade secrets of 
AEFC or commercial or financial information which is considered 
confidential.

Section III. Definitions

    (a) The term ``Index Fund'' means any investment fund, account or 
portfolio sponsored, maintained, trusteed, or managed by AEFC, in which 
one or more investors invest, and --
    (1) Which is designed to track the rate of return, risk profile and 
other

[[Page 10325]]

characteristics of an independently maintained securities Index, as 
described in Section III(c) below, by either (i) replicating the same 
combination of securities which compose such Index or (ii) sampling the 
securities which compose such Index based on objective criteria and 
data;
    (2) For which AEFC does not use its discretion, or data within its 
control, to affect the identity or amount of securities to be purchased 
or sold;
    (3) That contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and,
    (4) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund which is intended to 
benefit AEFC or any party in which AEFC may have an interest.
    (b) The term ``Model-Driven Fund'' means any investment fund, 
account or portfolio sponsored, maintained, trusteed, or managed by 
AEFC, in which one or more investors invest, and --
    (1) Which is composed of securities the identity of which and the 
amount of which are selected by a computer model that is based on 
prescribed objective criteria using independent third party data, not 
within the control of AEFC, to transform an independently maintained 
Index, as described in Section III(c) below;
    (2) Which contains ``plan assets'' subject to the Act, pursuant to 
the Department's regulations (see 29 CFR 2510.3-101, Definition of 
``plan assets''--plan investments); and
    (3) That involves no agreement, arrangement, or understanding 
regarding the design or operation of the Fund or the utilization of any 
specific objective criteria which is intended to benefit AEFC or any 
party in which AEFC may have an interest.
    (c) The term ``Index'' means a securities index that represents the 
investment performance of a specific segment of the public market for 
equity or debt securities in the United States, but only if --
    (1) The organization creating and maintaining the index is--
    (A) Engaged in the business of providing financial information, 
evaluation, advice or securities brokerage services to institutional 
clients,
    (B) A publisher of financial news or information, or
    (C) A public stock exchange or association of securities dealers; 
and,
    (2) The index is created and maintained by an organization 
independent of AEFC; and,
    (3) The index is a generally accepted standardized index of 
securities which is not specifically tailored for the use of AEFC.
    (d) The term ``opening date'' means the date on which investments 
in or withdrawals from an Index or Model-Driven Fund may be made.
    (e) The term ``Buy-up'' means an acquisition of AE Stock by an 
Index or Model-Driven Fund in connection with the initial addition of 
such Stock to an independently maintained index upon which the Fund is 
based or the initial investment of a Fund in such Stock.
    (f) The term ``AEFC'' refers to American Express Financial 
Corporation and its affiliates, as defined below in paragraph (g).
    (g) An ``affiliate'' of AEFC includes:
    (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 or relative of such person, or 
partner of any such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner or employee.
    (h) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (i) The term ``automated trading system'' means an electronic 
trading system that functions in a manner intended to simulate a 
securities exchange by electronically matching orders on an agency 
basis from multiple buyers and sellers, such as an ``alternative 
trading system'' within the meaning of the SEC's Reg. ATS [17 CFR part 
242.300], as such definition may be amended from time to time, or an 
``automated quotation system'' as described in section 3(a)(51)(A)(ii) 
of the '34 Act [15 USC 8c(a)(51)(A)(ii)].
    (j) The term ``recognized U.S. securities exchange'' means a U.S. 
securities exchange that is registered as a ``national securities 
exchange'' under Section 6 of the '34 Act (15 USC 78f), as such 
definition may be amended from time to time, which performs with 
respect to securities the functions commonly performed by a stock 
exchange within the meaning of definitions under the applicable 
securities laws (e.g., 17 CFR part 240.3b-16).
    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) published on September 
19, 2000 at 65 FR 56715.

Written Comments

    The Department received one written comment with respect to the 
Notice and no requests for a public hearing. The comment, which was 
submitted by the applicant, AEFC, requests certain modifications to the 
conditional language and the Summary of Facts and Representations (the 
Summary) of the Notice. AEFC has requested these changes for purposes 
of clarification or to correct several typographical errors.
    Following is a discussion of AEFC's comment and the Department's 
responses to the areas of concern raised by AEFC.
    1. Investment by the AEFC plans in the funds. On page 56716 of the 
Notice, Section I(j) provides that ``[n]o more than ten (10) percent of 
the assets of any Fund that acquires and holds AE Stock is comprised of 
any AEFC Plan(s) for which AEFC exercises investment discretion.'' AEFC 
assumes that this condition relates to the aggregate interest of all 
Plans that are sponsored by AEFC and its affiliates. AEFC also assumes 
that this condition does not restrict Fund investments by any AEFC Plan 
that is a participant-directed, defined contribution plan, even though 
AEFC or its affiliates may have used their authority to make such Fund 
available as a permissible investment under such Plan.
    In consideration of AEFC's comment, the Department hereby confirms 
that the 10 percent investment limitation refers to the aggregate 
interest that all AEFC Plans may have in a Fund. The Department also 
wishes to confirm that this limitation does not restrict Fund 
investments by any AEFC Plan, which is a defined contribution, 
participant-directed plan, even though AEFC or its affiliates may have 
used their authority to make such Fund available to an AEFC Plan 
participant as a Plan investment option.
    In addition to the above, AEFC has requested the Department to 
clarify that the 10 percent investment limitation would be met if a 
collective investment fund (in which an AEFC Plan has more than a 10 
percent interest) invests in an Index or Model-Driven Fund that holds 
AE Stock. On a ``look-through'' basis, AEFC represents that the AEFC 
Plan would not hold more than a 10 percent interest in the second Fund.
    In response to this comment, the Department wishes to emphasize 
that this principle would apply as long as the AEFC Plan's interest in 
the second Fund does not exceed, on a ``look-through'' basis, 10 
percent of the second Fund. For purposes of illustration, the

[[Page 10326]]

Department is providing the following example.

    Assume that Plan A, an AEFC Plan, has invested $30 million in 
Collective Investment Fund #1 and that Collective Investment Fund #1 
has total assets of $100 million. On the basis of the foregoing, 
Plan A has a 30 percent undivided ownership interest in Collective 
Investment Fund #1.
    Assume that Collective Investment Fund #1 invests all of its 
assets in Index Fund #2 which has $500 million in total assets and 
invests in AE Stock.
    Plan A's ownership interest in Index Fund #2 would be determined 
as follows: $30 million/$100 million + $500 million = 5 percent.
    Thus, on a ``look-through'' basis, Plan A would not hold more 
than a 10 percent interest in Index Fund #2.

    2. Fund transactions. On page 56716 of the Notice, in Section I(e), 
and on page 56720 of the Summary, in Representation 14(f), it states 
that ``[n]o transactions by a Fund involve purchases from or sales to, 
AEFC (including officers, directors, or employees thereof), or any 
party in interest that is a fiduciary with discretion to invest plan 
assets into the Fund (unless the transaction by the Fund with such 
party in interest would be otherwise subject to an exemption).'' AEFC 
has requested that the Department clarify that the foregoing language 
is meant to cover only transactions that are subject to this exemption.
    Accordingly, the Department concurs with AEFC's interpretation of 
the subject language.
    3. Affiliate definition. On page 56717 of the Notice, Section 
III(g) of the Definitions provides, in part, that the term 
``affiliate'' means, with respect to AEFC, ``an entity which directly 
or indirectly, through one or more intermediaries, is controlled by 
AEFC.'' AEFC believes that this definition is confusing and duplicative 
because it implies that only those entities controlled by AEFC are 
affiliates rather than those which AEFC directly or indirectly 
controls, is controlled by or is under common control with. Therefore, 
AEFC suggests that Section III(g) be deleted and that Section III(h), 
which also defines the term ``affiliate,'' be redesignated as Section 
III(g).
    In response, the Department concurs with AEFC's clarification and 
has modified Section III(g) of the Notice, accordingly. In addition, 
the Department has redesignated paragraphs (i) through (k) of Section 
III as paragraphs (h) through (j) in the final exemption.
    4. Miscellaneous revisions. On page 56717 of the Notice, 
Representation 1 of the Summary provides a description of AEFC 
``together with its subsidiaries.'' AEFC has requested that the 
Department modify this phrase to read ``together with its affiliates.''
    In addition, on page 56718 of the Notice, Representation 2 of the 
Summary states, in part, that ``AEFC acts as investment manager of 
institutional accounts, including employee benefit plans, with assets 
totaling approximately $38.3 million.'' However, AEFC points out that 
the ``$38.3 million'' figure should be revised to read ``$38.3 
billion.''
    In response to the foregoing comments, the Department has noted 
these revisions to the Summary.
    For further information regarding AEFC's comment letter or other 
matters discussed herein, interested persons are encouraged to obtain 
copies of the exemption application file (Exemption Application No. D-
10855) 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-1513, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Accordingly, after giving full consideration to the entire record, 
including the written comment provided by AEFC, the Department has made 
the aforementioned changes to the Notice and 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.)

ING Barings LLC, ING Institutional Trust Company and Affiliates, 
Located in New York, New York, Exemption

[Prohibited Transaction Exemption 2001-08 Exemption Application No.: D-
10908].

Section I--Transactions

    Effective as of December 6, 2000, the date of the publication of 
the proposed exemption in the Federal Register, 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,\1\ shall not apply 
to:
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
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    (a) the lending of securities to:
    (1) ING Barings LLC (ING);
    (2) the London branch (ING Bank London) of ING Bank N.V. or any 
successor in interest bank which is subject to the laws of the United 
Kingdom and the Netherlands;
    (3) ING Barings Limited (ING London);
    (4) ING Baring Securities (Japan) Limited (ING Japan); and
    (5) any broker-dealer that, now or in the future, is an affiliate 
of ING which is subject to regulation under the laws of the United 
States or the United Kingdom or Japan;\2\ by employee benefit plans, 
including commingled investment funds holding assets of such plans (the 
Client Plan(s)), for which in connection with securities lending 
activities, an affiliate of the ING Borrowers, the ING Institutional 
Trust Company (ING Institutional), its corporate successors, or any 
foreign or domestic affiliate of ING,\3\ acts as a securities lending 
agent (or sub-agent) or as a directed trustee or custodian for such 
Client Plans under either of two securities lending arrangements 
referred to herein as Plan A and Plan B; and
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    \2\ ING, ING Bank London or any successor in interest bank which 
is subject to the laws of the United Kingdom and the Netherlands, 
ING London, ING Japan, and any broker-dealer that, now or in the 
future, is an affiliate of ING which is subject to regulation under 
the laws of the United States or the United Kingdom or Japan are 
referred to herein collectively as ING Borrowers or individually as 
ING Borrower.
    \3\ ING Institutional, its corporate successors, or any foreign 
or domestic affiliate of ING are referred to herein collectively as 
ING Trust.
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    (b) the receipt of compensation by ING Trust in connection with 
securities lending transactions, provided that for all transactions 
described above the conditions, as set forth in Section II, below, are 
satisfied.

Section II--Conditions

    (a) For each Client Plan, neither the ING Borrowers nor ING Trust 
has or exercises discretionary authority or control with respect to the 
investment of the assets of such Client Plan involved in the 
transaction (other than with respect to the investment of cash 
collateral after the securities have been loaned and collateral 
received), or renders investment advice (within the meaning of 29 CFR 
2510.3-21(c)) with respect to those assets, including any decisions 
concerning such Client Plan's acquisition or disposition of securities 
available for securities lending transactions;
    (b) With regard to:
    (1) Plan A, under which ING Trust lends securities of a Client Plan 
to an ING Borrower in either an agency or sub-agency capacity, such 
arrangement is approved in advance by a fiduciary of the Client Plan 
(the Client Plan Fiduciary) that is independent of ING

[[Page 10327]]

Trust and the ING Borrower and is negotiated by ING Trust, which acts 
as a liaison between the lender and the borrower to facilitate the 
securities lending transaction.\4\
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    \4\ The Department, herein, is not providing exemptive relief 
for securities lending transactions engaged in by primary lending 
agents, other than ING Trust, beyond that provided pursuant to 
Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) (46 FR 7527, 
January 23, 1981, as amended at 52 FR 18754, May 19, 1987), and 
Prohibited Transaction Class Exemption 82-63 (PTCE 82-63) (47 FR 
14804, April 6, 1982).
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    (2) Plan B, under which an ING Borrower directly negotiates an 
agreement with the Client Plan Fiduciary, including a Client Plan for 
which ING Trust provides services with respect to the portfolio of 
securities to be loaned, pursuant to an exclusive borrowing arrangement 
(an Exclusive Borrowing Arrangement), such Client Plan Fiduciary is 
independent of both the ING Borrower and ING Trust, and ING Trust does 
not participate in any such negotiations.
    (c) Before a Client Plan participates in a securities lending 
program with respect to Plan A and before any loan of securities to an 
ING Borrower pursuant to Plan A is affected, a Client Plan Fiduciary 
that is independent of ING Trust and the ING Borrower must have:
    (1) Authorized and approved a securities lending authorization 
agreement with ING Trust (the Agency Agreement), where ING Trust is 
acting as the direct securities lending agent;
    (2) Authorized and approved the primary securities lending 
authorization agreement (the Primary Lending Agreement) with the 
primary lending agent, where ING Trust is lending securities under a 
sub-agency arrangement with a primary lending agent; and
    (3) Approved the general terms of the securities loan agreement 
(the Basic Loan Agreement) between such Client Plan and the ING 
Borrower, the specific terms of which are negotiated and entered into 
by ING Trust.
    (d) The terms of each loan of securities by a Client Plan to an ING 
Borrower are at least as favorable to such Plan as those of a 
comparable arm's-length transaction between unrelated parties;
    (e) A Client Plan may terminate a securities lending agency (or 
sub-agency) agreement under Plan A or an Exclusive Borrowing 
Arrangement under Plan B at any time without penalty on five (5) 
business days notice, whereupon the ING Borrower shall deliver 
securities identical to the borrowed securities (or the equivalent 
thereof in the event of reorganization, recapitalization, or merger of 
the issuer of the borrowed securities) to the Client Plan within:
    (1) The customary delivery period for such securities;
    (2) Five (5) business days; or
    (3) The time negotiated for such delivery by the Client Plan and 
the ING Borrower, whichever is less.
    (f) ING Institutional (or another custodian designated to act on 
behalf of the Client Plan) as agent for the Client Plan receives from 
the ING Borrower (either by physical delivery or by book entry in a 
securities depository located in the United States, wire transfer or 
similar means) by the close of business on or before the day the loaned 
securities are delivered to such ING Borrower, collateral consisting of 
U.S. currency, securities issued or guaranteed by the U.S. Government 
or its agencies or instrumentalities, irrevocable letters of credit 
issued by a United States Bank, other than ING Trust or the ING 
Borrowers, or any combination thereof, or other collateral permitted 
under PTCE 81-6 (as it may be amended or superseded);
    (g) The market value (or in the case of a letter of credit, a 
stated amount) of the collateral on the close of business on the day 
preceding the day of the loan is initially at least 102 percent (102%) 
of the market value of the loaned securities. The applicable Basic Loan 
Agreement gives the Client Plan a continuing security interest in and 
an lien on the collateral. The level of collateral is monitored daily 
either by ING Trust under Plan A or ING Trust or other designee of the 
Client Plan under Plan B. If the market value of the collateral, on the 
close of trading on a business day, is less than 100 percent (100%) of 
the market value of the loaned securities at the close of business on 
that day, the ING Borrower is required to deliver by the close of 
business on the next day, sufficient additional collateral such that 
the market value of the collateral will again equal 102 percent (102%).
    (h) With regard to:
    (1) Plan A, prior to a Client Plan entering into a Basic Loan 
Agreement, the ING Borrower will furnish its most recent available 
audited and unaudited statements to ING Trust, which, in turn, will 
provide such statements to the Client Plan before such Client Plan 
approves of the terms of the Basic Loan Agreement. The Basic Loan 
Agreement contains a requirement that the applicable ING Borrower must 
give prompt notice at the time of a loan of any material adverse 
changes in its financial condition since the date of the most recently 
furnished financial statements. If any such changes have taken place, 
ING Trust will not make any further loans to the ING Borrower, unless 
an independent Client Plan Fiduciary is provided notice of any material 
change and approves the loan in view of the changed financial 
condition;
    (2) Plan B, prior to a Client Plan entering into an Exclusive 
Borrowing Arrangement, the ING Borrower will furnish its most recent 
available audited and unaudited statements to the Client Plan before 
the Client Plan elects to enter into such agreement. The Exclusive 
Borrowing Arrangement contains a requirement that the ING Borrower must 
give prompt notice at the time of the loan of any material adverse 
changes in its financial condition since the date of the most recently 
furnished financial statements;
    (i) In return for lending securities, the Client Plan either:
    (1) receives a reasonable fee which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) has the opportunity to derive compensation through the 
investment of cash collateral. (Under such circumstances, the Client 
Plan may pay a loan rebate or similar fee to the ING Borrower, if such 
fee is not greater than the fee the Client Plan would pay in a 
comparable arm's length transaction with an unrelated party.)
    (j) All the procedures regarding the securities lending activities 
will at a minimum conform to the applicable provisions of PTCE 81-6 and 
PTCE 82-63 as well as the applicable banking laws of the United Kingdom 
and the Netherlands and securities laws of the United States or the 
United Kingdom or Japan;
    (k) ING Institutional agrees to indemnify and hold harmless the 
Client Plans in the United States (including the sponsor and 
fiduciaries of such Client Plans) for any transactions covered by this 
exemption with ING Borrowers so that the Client Plans do not have to 
litigate in the case of ING Borrowers in foreign jurisdictions or sue 
ING Borrowers to realize on the indemnification. Such indemnification 
by ING Institutional is against any and all reasonably foreseeable 
damages, losses, liabilities, costs, and expenses (including attorney's 
fees) which the Client Plans may incur or suffer, arising from any 
impermissible use by ING Borrowers of the loaned securities or from an 
event of default arising from ING Borrowers' failing to deliver loaned 
securities in accordance with the applicable Basic Loan Agreement or

[[Page 10328]]

otherwise failing to comply with the terms of such agreement, except to 
the extent that such losses or damages are caused by the Client Plans' 
own negligence.
    (1) If any event of default occurs, ING Institutional promptly and 
at its own expense (subject to rights of subrogation in the collateral 
and against such borrower), will purchase or cause to be purchased, for 
the account of the Client Plans, securities identical to the borrowed 
securities (or their equivalent as discussed above). If the collateral 
is insufficient to accomplish such purchase, ING Institutional will 
indemnify the Client Plan for any shortfall in the collateral plus 
interest on such amount and any transaction costs incurred (including 
attorney's fees of the Client Plan for legal actions arising out of the 
default on loans or failure to properly indemnify under this 
provision). Alternatively, if such replacement securities cannot be 
obtained on the open market, ING Institutional will pay the Client Plan 
the difference in U.S. dollars between the market value of the loaned 
securities and the market value of the related collateral on the date 
of the borrower's breach of its obligation to return the loaned 
securities.
    (2) If, however, the event of default is caused by the ING 
Borrower's failure to return securities within a designated time, the 
Client Plan has the right to purchase securities identical to the 
borrowed securities and apply the collateral to payment of the purchase 
price and any other expenses of the Plan associated with the sale and/
or purchase.
    (l) The Client Plan receives the equivalent of all distributions 
made to holders of the borrowed securities during the term of the loan, 
including, but not limited to, cash dividends, and interest payments on 
the loaned securities, shares of stock as a result of stock splits and 
rights to purchase additional securities, or other distributions.
    (m) Prior to any Client Plan's approval of the lending of its 
securities to any ING Borrower, a copy of the notice of proposed 
exemption and a copy of the final exemption will be provided to such 
Client Plan.
    (n) Each Client Plan receives monthly reports with respect to the 
securities lending transactions, including but not limited to the 
information described in representation number 19, as published in the 
Summary of Facts and Representations in the Notice of Proposed 
Exemption (the Notice), so that an independent Client Plan Fiduciary 
may monitor such transactions with the ING Borrowers.
    (o) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to the 
ING Borrowers; provided, however, that--
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization (the Related Client Plans), whose assets are commingled 
for investment purposes in a single master trust or any other entity 
the assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the 
Plan Asset Regulation), which entity is engaged in securities lending 
arrangements with the ING Borrowers, the foregoing $50 million 
requirement shall be deemed satisfied if such trust or other entity has 
aggregate assets which are in excess of $50 million; provided that if 
the fiduciary responsible for making the investment decision on behalf 
of such master trust or other entity is not the employer or an 
affiliate of the employer, such fiduciary has total assets under its 
management and control, exclusive of the $50 million threshold amount 
attributable to plan investment in the commingled entity, which are in 
excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations, or 
employee organization (the Unrelated Client Plans), whose assets are 
commingled for investment purposes in a group trust or any other form 
of entity the assets of which are ``plan assets'' under the Plan Asset 
Regulation, which entity is engaged in securities lending arrangements 
with the ING Borrowers, the foregoing $50 million requirement is 
satisfied if such trust or other entity has aggregate assets which are 
in excess of $50 million (excluding the assets of any plan with respect 
to which the fiduciary responsible for making the investment decision 
on behalf of such group trust or other entity or any member of the 
controlled group of corporations including such fiduciary is the 
employer maintaining such plan or an employee organization whose 
members are covered by such plan). However, the fiduciary responsible 
for making the investment decision on behalf of such group trust or 
other entity--
    (A) Has full investment responsibility with respect to Client Plan 
assets invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million. (In addition, 
none of the entities described above must be formed for the sole 
purpose of making loans of securities.)
    (p) With respect to any calendar quarter, at least 50 percent (50%) 
or more of the outstanding dollar value of securities loans negotiated 
on behalf of Client Plans will be to unrelated borrowers, unless the 
Client Plan has entered into an Exclusive Borrowing Arrangement with 
the ING Borrowers.
    (q) In addition to the above, all loans involving Foreign 
Borrowers, as defined in Section III (c), below, must satisfy the 
following supplemental requirements:
    (1) Such Foreign Borrower is a bank which is regulated by both the 
Dutch Central Bank (De Nederlandsche Bank or DNB) and the Financial 
Services Authority (FSA) of the United Kingdom or must be a registered 
broker-dealer subject to regulation by either the Securities and 
Futures Authority of the United Kingdom (the SFA) or the Ministry of 
Finance (the MOF) and the Tokyo Stock Exchange.
    (2) Such Foreign Borrower must be in compliance with all applicable 
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities and 
Exchange Act of 1934 (the 1934 Act) which provides for foreign broker-
dealers a limited exemption from United States registration 
requirements;
    (3) All collateral is maintained in United States dollars or United 
States dollar-denominated securities or letters of credit;
    (4) All collateral is held in the United States and the situs of 
the securities lending agreements (either the Basic Loan Agreement 
under Plan A or the Exclusive Borrowing Arrangement under Plan B) is 
maintained in the United States under an arrangement that complies with 
the indicia of ownership requirements under section 404(b) of the Act 
and the regulations promulgated under 29 CFR 2550.404(b)-1; and
    (5) Prior to entering a transaction involving a Foreign Borrower, 
the applicable Foreign Borrower must--
    (A) Agree to submit to the jurisdiction of the United States;
    (B) Agree to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (C) Consent to service of process on the Process Agent; and
    (D) Agree that enforcement by a Client Plan of the indemnity 
provided by ING Institutional will occur in the United States courts;
    (r) ING maintains or causes to be maintained within the United 
States for a period of six (6) years from the date of each securities 
lending transaction, in

[[Page 10329]]

a manner that is convenient and accessible for audit and examination, 
such records as are necessary to enable the persons described in 
Section II (s)(1) below to determine whether the conditions of this 
exemption, if granted, have been met; except that--
    (1) a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of ING or the 
other ING Borrowers, the records are lost or destroyed prior to the end 
of the six year period; and
    (2) no party in interest with respect to an employee benefit plan, 
other than ING or the other ING Borrowers, 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) or (b) of the Code, if such 
records are not maintained, or are not available for examination as 
required by Section II(s)(1), below.
    (s)(1) Except as provided in subparagraph (2) of this Section II(s) 
and notwithstanding any provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to in Section II(r), 
above, are unconditionally available at their customary location for 
examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission (SEC);
    (B) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any participating Client Plan, or 
any duly authorized employee or representative of such employer; and
    (D) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (2) None of the persons described in subparagraphs (B)-(D) of 
Section II(s)(1) shall be authorized to examine trade secrets of ING or 
the other ING Borrowers, or commercial or financial information which 
is privileged or confidential.

Section III--Definitions

    For purposes of this exemption,
    (a) The term ``affiliate'' of another person shall include:
    (1) Any person, directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, employee, or relative (as defined in 
section 3(15) of the Act) of such other person or any partner in such 
person; and
    (3) Any corporation or partnership of which such other person is an 
officer, director, employee or in which such person is a partner.
    (b) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (c) The term, ``Foreign Borrower or Foreign Borrowers'' means: (1) 
ING Bank London or any successor in interest bank subject to the laws 
of the United Kingdom and the Netherlands; (2) ING London; (3) ING 
Japan; and (4) any broker-dealer that, now or in the future, is an 
affiliate of ING which is subject to regulation under the laws of the 
United States or the United Kingdom or Japan.

Written Comments

    In the Notice, the Department of Labor (the Department) invited all 
interested persons to submit written comments and requests for a 
hearing on the proposed exemption within thirty (30) days of the date 
of the publication of the Notice in the Federal Register on December 6, 
2000. All comments and requests for a hearing were due by January 5, 
2001.
    During the comment period, the Department received no requests for 
a hearing. However, the Department did receive comment letters from the 
applicant. In this regard, in a letter dated January 3, 2001, the 
applicants requested certain modifications and clarifications to the 
language of the exemption, as proposed, and requested certain 
amendments to the language of the Summary of Facts and Representations 
(SFR) in the Notice. Subsequently, in a letter dated January 19, 2001, 
the applicants revised various portions of the previous comment letter. 
A discussion of each of the applicant's comments and the Department's 
responses, thereto, are set forth in the numbered paragraphs below.
    1. The applicants have requested that any reference to IITC in the 
final exemption be changed to ``ING Trust.'' In this regard, the 
applicants believe that the use of the term, ``IITC,'' will be 
confusing to potential clients when the exemption documents are 
provided to such clients prior to entering into a securities lending 
arrangement.
    Although the Department concurs with the applicants' request and 
has changed all references to ``IITC'' in the final exemption to ``ING 
Trust,'' the Department notes that, throughout the proposed exemption, 
the Department distinguished between the ING Institutional Trust 
Company (ING Institutional), acting in its individual capacity, and 
IITC, a collective term, which refers to ING Institutional, its 
corporate successors, or any foreign or domestic affiliate of ING 
Barings LLC. Accordingly, in compliance with the applicants' request 
the words, ``ING Trust,'' in the final exemption will collectively 
refer to ING Institutional, its corporate successors, or any foreign or 
domestic affiliate of ING Barings LLC.
    2. In its revised comment letter, dated January 19, 2001, the 
applicants requested an amendment of paragraph (f) of Section II, as 
published in the Notice (65 FR 76294), by replacing the phrase, 
``Client Plan,'' with the words, ``ING Institutional.''
    The Department concurs and has modified Section II(f) of the final 
exemption. Words that have been stricken appear in the closed brackets, 
and additions have been underlined in the text below, as follows:

    (f) [Client Plans] ING Institutional (or another custodian 
designated to act on behalf of the Client Plan) as agent for the 
Client Plan receives from the ING Borrower (either by physical 
delivery or by book entry in a securities depository located in the 
United States, wire transfer or similar means) by the close of 
business on or before the day the loaned securities are delivered to 
such ING Borrower, collateral consisting of U.S. currency, 
securities issued or guaranteed by the U.S. Government or its 
agencies or instrumentalities, irrevocable letters of credit issued 
by a United States Bank, other than ING Trust or the ING Borrowers, 
or any combination thereof, or other collateral permitted under PTCE 
81-6 (as it may be amended or superseded);

    Further, the Department notes that for the sake of consistency, the 
text of paragraph 17, as published in the Notice (65 FR 76299), should 
have been modified by striking the words, ``IITC,'' and substituting 
the phrase, ``ING Institional acting as agent.'' Accordingly, words 
that should have been stricken in the first sentence of paragraph 17 in 
the Notice appear in the closed brackets, and additions are underlined 
in the text below, as follows:

    [IITC] ING Institutional acting as agent on behalf of a Client 
Plan will receive collateral from ING Borrowers by physical 
delivery, book entry in a U.S. securities depository, wire transfer, 
or similar means by the close of business on or before the day the 
loaned securities are delivered to such ING Borrowers.

    3. The applicants have suggested certain deletions and additions to 
the language in the SFR, as published in the Notice, and have requested 
that the Department substitute the text which is quoted below for the 
language that appeared in the Notice. The Department concurs and has 
made the requested deletions and additions in the language

[[Page 10330]]

in the SFR, as published in the Notice. The applicants' deletions to 
the language that appeared in the SFR are noted below by the words 
stricken in the closed brackets, and the applicants' additions have 
been underlined in the text below.
    (A) The text of subparagraph (d) of paragraph 36, as published in 
the SFR in the Notice (65 FR 76303), should have read as follows:

    Neither the ING Borrowers nor IITC will exercise any 
discretionary authority or control with respect to the investment of 
the assets of Client Plans involved in the securities lending 
transactions (other than with respect to the investment of cash 
collateral after the securities have been loaned and the collateral 
received), or render investment advice with respect to those assets, 
including any decisions concerning a Client Plan's acquisition or 
disposition of securities available for lending.
    (B) The applicants seek to strike the entire text of subparagraph 
(h) of paragraph 36, as published in the SFR in the Notice(65 FR 
76303), as set forth, below:

    [The market value of the collateral which secures any loan of 
securities will at all times equal at least 102 percent (102%) of 
the market value of the loaned securities;]

and substitute in its entirety the following language:

    The level of collateral is monitored daily either by ING Trust 
under Plan A or ING Trust or other designee of the Client Plan under 
Plan B. The market value of the collateral will initially equal 102 
percent (102%) of the loaned securities. If the market value of the 
collateral falls below 100 percent (100%), the ING Borrower will 
deliver additional collateral on the following day such that the 
market value of the collateral will again equal 102 percent (102%).

    After giving full consideration to the entire record, including the 
written comments from the applicants, the Department has decided to 
grant the exemption, as described, amended, and concurred in above. In 
this regard, the comment letters submitted by the applicants to the 
Department have been included as part of the public record of the 
exemption application. The complete application file, including all 
supplemental submissions received by the Department, is made available 
for public inspection in the Public Documents Room of the Pension 
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor, 
200 Constitution Avenue, NW., Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on December 6, 2000, at 65 FR 76293.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (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 8th day of February, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 01-3689 Filed 2-13-01; 8:45 am]
BILLING CODE 4510-29-P