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Grant of Individual Exemptions; Keystone Brokerage, Inc. (Keystone) et al. [04/16/2001]
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Volume 66, Number 73, Page 19527-19532
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2001-14; Exemption Application No. D-
10571, et al.]
Grant of Individual Exemptions; Keystone Brokerage, Inc.
(Keystone) et al.
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.
Keystone Brokerage, Inc. (Keystone), et al. Located in
Williamsport, PA
[Prohibited Transaction Exemption 2001-14 Exemption Application No. D-
10571]
Exemption
Section I. Covered Transactions
The sanctions resulting from the application of section 4975 of the
Code, by reason of 4975(c)(1)(A) through (D) of the Code shall not
apply, effective October 3, 1997 through June 30, 2000, to the purchase
or redemption of shares, by a self-directed individual retirement
account (the IRA), of investment portfolios (the Portfolios) of certain
mutual funds that were affiliated with Keystone (the Affiliated Funds)
or in other mutual funds that were unaffiliated with Keystone (the
Third Party Funds),\1\ in connection with the IRA's participation in
the KeyPremier Nautilus Series Program, or its successor, the Nautilus
Series Program, (together, the Investment Advisory Program).
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\1\ The Affiliated Funds and the Third Party Funds are
collectively referred to herein as the Funds.
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In addition, 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, effective October 3, 1997 through June 30,
2000, to (1) the provision, by Keystone, of asset allocation and
related services to an independent fiduciary of an IRA (the Independent
Fiduciary), which resulted in the selection of Portfolios in the
Investment Advisory Program by the Independent Fiduciary for the
investment of IRA assets; and (2) the receipt of fees by Martindale
Andres & Co., Inc. and Governor Group Advisors, Inc. (GGA), affiliates
of Keystone, in connection with provision of investment advisory or
sub-advisory services to the Fund Portfolios.
This exemption is subject to the conditions set forth below in
Section II.
Section II. General Conditions
(a) The participation by an IRA in the Investment Advisory Program
was approved by an Independent Fiduciary.
(b) As to each IRA, the total fees that were paid to Keystone and
its affiliates constituted no more than reasonable compensation for the
services provided.
(c) With the exception of distribution-related fees paid to
Keystone pursuant to Rule 12b-1 (the Rule 12b-1 fees) of the Investment
Company Act of 1940 (the Investment Company Act) which were offset, no
IRA paid a fee or commission by reason of the acquisition or redemption
of the shares of the Funds.
(d) The terms of each purchase or redemption of shares in the Funds
remained at least as favorable to an investing IRA as those obtainable
in an arm's length transaction with an unrelated party.
(e) Keystone provided written documentation to each IRA's
Independent Fiduciary of its recommendations or evaluations regarding
the Fund Portfolios as well as the design and parameters with respect
to an asset allocation model (the Asset Allocation Model), based upon
objective criteria that were uniformly applied.
(f) Any recommendation or evaluation made by Keystone to an
Independent Fiduciary was implemented only at the express direction of
such Independent Fiduciary.
(g) The quarterly fee paid by an IRA to Keystone and its affiliates
for asset allocation and related services rendered to such IRA under
the Investment Advisory Program (the Outside Fee) was offset by--
(1) All gross investment management fees (the Advisory Fees) that
were paid by the Affiliated Funds to Keystone, including any sub-
advisory fees that were paid by the Affiliated Funds to third party
sub-advisers;
(2) All administrative fees (the Administrative Fees) that were
paid to GGA and BISYS Fund Services Limited Partnership (BISYS), an
unrelated party; and
(3) All Rule 12b-1 Fees that were paid by the Third Party Funds to
Keystone or its current and former affiliates with respect to an
Investment Advisory Account (the Account), such that the sum of the
offset and the net Outside Fee always equaled the aggregate Outside
Fee, thereby making the selection of Affiliated Funds or Third Party
Funds revenue-neutral.
(h) With respect to its participation in the Investment Advisory
Program, prior to purchasing shares in the Portfolios of the Affiliated
Funds and the Third Party Funds--
(1) Each Independent Fiduciary received the following written or
oral disclosures from Keystone:
(A) A brochure describing the Investment Advisory Program; an
Investment Advisory Program Account Agreement (the Account Agreement);
a description of the Asset Allocation Models; and a reference guide/
disclosure statement providing details
[[Page 19528]]
about the Investment Advisory Program, the fees charged thereunder, the
procedures for establishing, making additions to and withdrawing from
the Accounts, and other related information;
(B) A risk tolerance and goal analysis questionnaire (the
Questionnaire) or a written report of responses given by the
Independent Fiduciary in a personal interview with a Keystone
representative (the Interview Report);
(C) Copies of applicable prospectuses (the Prospectuses) for the
Fund Portfolios discussing the investment objectives of the Portfolios;
the policies employed to achieve the objectives of the Portfolios; the
corporate affiliation existing between Keystone and its affiliates; the
compensation paid to such entities; disclosures relating to rebalancing
and reallocating Asset Allocation Models; and information explaining
the risks attendant to investing in Portfolios for the Affiliated Funds
and the Third Party Funds;
(D) Upon written or oral request to Keystone, a Statement of
Additional Information supplementing the applicable Prospectus, which
described the types of securities and other instruments in which the
Portfolios could invest and the investment policies and strategies that
the Portfolios could utilize, including a description of the risks;
(E) A copy of the Account Agreement between the IRA and Keystone
relating to the IRA's participation in the Investment Advisory Program;
(F) A written recommendation of a specific Asset Allocation Model,
together with a copy of the Questionnaire and response or the Interview
Report;
(G) Upon written request to Keystone, a copy of any investment
advisory agreement or sub-advisory agreement between Keystone and the
Affiliated Funds; and
(H) Written disclosures of Keystone's affiliation or non-
affiliation with the parties who act as sponsors, distributors,
administrators, investment advisers and sub-advisers, custodians and
transfer agents of the Portfolios.
(2) If accepted as an investor in the Investment Advisory Program,
the Independent Fiduciary was required to acknowledge in writing to
Keystone prior to purchasing shares of the Fund, that such Independent
Fiduciary had received copies of the documents described in paragraph
(h)(1) of this Section II and represent to Keystone that such
individual was--
(A) Independent of Keystone and its affiliates;
(B) Knowledgeable with respect to the IRA in administrative matters
and funding matters related thereto; and
(C) Able to make an informed decision concerning participation in
the Investment Advisory Program.
(i) Subsequent to its participation in the Investment Advisory
Program, each Independent Fiduciary received the following written or
oral disclosures from Keystone with respect to ongoing participation:
(1) Written confirmations of each purchase or redemption
transaction involving shares of an Affiliated Fund or a Third Party
Fund Portfolio (including transactions resulting from the realignment
of assets caused by a change in the Asset Allocation Model's investment
mix and from periodic rebalancing of Account assets);
(2) Telephone quotations of such Independent Fiduciary's IRA
Account balance;
(3) A periodic, but not less frequently than quarterly, Statement
of Account specifying the net asset value of the IRA's assets in such
Account, a summary of purchase, sale and exchange activity and
dividends received or reinvested, a summary of cumulative realized
gains and/or losses, and a statement of fees paid to Keystone and its
affiliates;
(4) Semiannual and annual reports that included financial
statements for the Portfolios;
(5) A quarterly report pertaining to the applicable Asset
Allocation Model describing the Asset Allocation Model's performance
during the preceding quarter; market conditions and economic outlook;
and, if applicable, prospective changes in Portfolio allocations for
the Asset Allocation Model and the reasons therefor;
(6) At least annually, a written or oral inquiry from Keystone to
ascertain whether the information provided on the Questionnaire or in
the Interview Report was still accurate or required updating; and
(7) At least annually during the first calendar quarter of each
year after March 24, 1999, or at other times specified in Section
II(l), a termination form (the Termination Form), meeting the
requirements of Section II(k) and (l) below.
(j) If authorized in writing by the Independent Fiduciary, the IRA
was automatically rebalanced on a quarterly basis by Keystone (using
the net asset values of the affected Funds as of the close of business
on a pre-established date) to the Asset Allocation Model previously
prescribed by the Independent Fiduciary, if one or more Fund
allocations deviated from the Asset Allocation Model prescribed by the
Independent Fiduciary because--
(1) At least one transaction required to rebalance the IRA among
the Funds involved a purchase or redemption of securities valued at
$250 or more; and
(2) The net asset value of the Fund affected was more than 5
percent of the IRA's investment in such Fund.
(k) Keystone was authorized to provide written notice to the
Independent Fiduciary, at least 30 days prior to the implementation of
any of the following changes:
(1) A change in the asset mix outside the current Asset Allocation
Model;
(2) The division of a class of assets (the Asset Class);
(3) The replacement of a Third Party Fund with an Affiliated Fund,
or an Affiliated Fund with a Third Party Fund; and
(4) An increase in the Outside Fee.
(l) The written notice described above in Section II(k) was
required to --
(1) State that the Independent Fiduciary could terminate the IRA's
participation in the Investment Advisory Program at will and without
penalty, upon receipt by Keystone of written notice from the
Independent Fiduciary; and
(2) Explain that any of the proposed changes noted in paragraphs
(k)(1)-(4) of Section II would go into effect if the Independent
Fiduciary did not elect to withdraw by the effective date.
(3) For changes occurring after March 24, 1999, the notice was to
be accompanied by a Termination Form containing instructions identical
to those set forth above in paragraphs (l)(1)-(2) of this Section II.
(m) Keystone was not authorized to replace an Affiliated Fund with
a Third Party Fund Portfolio or vice versa, nor was Keystone authorized
to make an additional Third Party Fund Portfolio available for
investment under the Investment Advisory Program.
(n) Keystone will maintain, for a period of six years, the records
necessary to enable the persons described in paragraph (o) 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 Keystone and/or
its affiliates, the records are lost or destroyed prior to the end of
the six year period; and
(2) No party in interest, other than Keystone, shall be subject to
the taxes imposed by section 4975(a) and 4975(b) of the Code if the
records are not maintained or are not available for
[[Page 19529]]
examination as required by paragraph (o) of this Section II below.
(o)(1) Except as provided in section (o)(2) of this paragraph, the
records referred to in paragraph (o) of this Section II are
unconditionally available at their customary location 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;
(B) Any Independent Fiduciary of a participating IRA or any duly
authorized representative of such Independent Fiduciary; and
(C) Any participant or beneficiary of any participating IRA or any
duly authorized representative of such participant or beneficiary.
(2) None of the persons described above in paragraphs (o)(1)(B) and
(o)(1)(C) of this paragraph (o) are authorized to examine the trade
secrets of Keystone or commercial or financial information which is
privileged or confidential.
Section III. Definitions
For purposes of this exemption:
(a) The term ``Keystone'' means Keystone Brokerage, Inc. and any
affiliate of Keystone, as defined in paragraph (b) of this Section III.
(b) An ``affiliate'' of Keystone
includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Keystone; (For purposes of this subparagraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual.)
(2) Any individual who is an officer, director or partner in
Keystone or a person described in subparagraph (b)(1); and
(3) Any corporation or partnership of which Keystone or an
affiliate or a person described in subparagraphs (b)(1) or (b)(2) of
this Section III, is a 10 percent or more partner or owner.
(c) The term ``officer'' means a president, any vice president in
charge of a principal business unit, division or function (such as
sales, administration or finance), or any other officer performing a
policy-making function for the entity.
(d) The term ``IRA'' includes a self-directed individual retirement
account which is described in section 408(a) of the Code and which is
not an ``employee benefit plan'' covered under Title I of the Act. The
term ``IRA'' does not include any IRAs that were sponsored or
maintained by Keystone or its affiliates for their own employees nor
does it include any IRAs that were held by employees of Keystone or its
affiliates in their individual capacities.
(e) The term ``Independent Fiduciary'' means an individual who was
covered under a self-directed IRA which invested in shares of the
Funds.
(f) The term ``Asset Class'' means an asset class under a
classification system used by Morningstar, Inc. (Morningstar) or
Lipper, Inc. (Lipper). For purposes of this exemption, two Funds were
not in the same Asset Class if they were classified differently under
either the Morningstar or Lipper classification systems. Thus, for
example, if two Funds were treated in separate Asset Classes under the
Morningstar system, they would be treated as being in separate Asset
Classes even if the Funds were in the same Asset Class (or were not
classified at all) under the Lipper system.
(g) The term ``Affiliated Fund'' means a portfolio of an investment
company registered under the Investment Company Act for which Keystone
or an affiliate acted as the investment adviser and may have also acted
as the sub-adviser, co-administrator or custodian.
(h) The term ``Third Party Fund'' means a portfolio of an
investment company that is registered under the Investment Company Act
for which neither Keystone nor any affiliate acted as an investment
adviser, sub-adviser, co-administrator or custodian.
(i) The ``Advisory Fees'' refer to the investment advisory fees
that were paid by the Affiliated Funds to Keystone and its affiliates.
(j) The ``Administrative Fees'' refer to the co-administration fees
that were paid by the Affiliated Funds to GGA and BISYS.
(k) The ``Rule 12b-1 Fees'' were paid to Keystone and its
affiliates by the Third Party Funds in connection with certain
distribution-related services (e.g., advertising) that were made
pursuant to a written plan of distribution.
Effective Date: This exemption is effective from October 3, 1997
until June 30, 2000.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the proposed exemption published on January 22, 2001 at 66 FR 6679.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Ibbotson Associates, Inc. (Ibbotson) Located in Chicago, Illinois
[Prohibited Transaction Exemption 2001-15; Exemption Application No.:
D-10897]
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
Ibbotson to Plan participants and the receipt of fees by Ibbotson 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 Ibbotson to provide the Service will be
expressly authorized in writing by an independent fiduciary of each
Plan.
B. Ibbotson shall provide the independent fiduciary of each Plan
with the following, in writing:
(1) Prior to authorization, a complete description of the Service
and disclosure 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 Ibbotson, 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 Ibbotson
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.
[[Page 19530]]
(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 Ibbotson 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. Ibbotson will provide each Plan participant with the following:
(1) Written notice that the Service is available and provided by
Ibbotson, 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 Ibbotson and a description of the Service.
(3) Access to a web site or paper-based communications which will
clearly indicate that the Plan participant is receiving the Service
from Ibbotson, and that Ibbotson is independent of the Service
Provider.
(4) A questionnaire which must be completed prior to utilization of
the Service.
(5) An investment advisory service agreement under which the Plan
participant will acknowledge his or her understanding that the Service
is provided by Ibbotson and not the Service Provider. This agreement
must be completed prior to utilization of the Service.
D. Any investment advice given to a Plan participant by Ibbotson
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 Ibbotson.
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 Ibbotson 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 Ibbotson 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 at least 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 Plan participants and beneficiaries (the
Revised Technology Fee).
(3) For subsequent years, Ibbotson will charge the Service Provider
an annual technology maintenance fee equal to up to 20% of the
technology licensing fee charged to the Service Provider in the first
year plus up to 20% of the Revised Technology Fee.
(4) Ibbotson will charge the Plan or Plan sponsor an Internet
customization fee where a Plan sponsor contracts directly with Ibbotson
for the provision of the Service. This flat fee will be based on the
time spent by Ibbotson 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 Plan
or the Plan sponsor to Ibbotson in connection with the Service will be
received or shared with a Service Provider.
I. Neither the fees charged nor the compensation received by
Ibbotson will be affected by the investment selections or the decisions
made by the Plan participants and beneficiaries regarding investments
of the assets in their accounts.
J. Each Service Provider shall represent to Ibbotson 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 similarly situated clients who do not contract for the
Service.
K. Ibbotson will maintain insurance coverage from an insurer with a
rating in one of the three highest generic categories by at least one
nationally recognized statistical rating service, in the amount of at
least $5 million for the payment of any liabilities that may arise with
respect to the Service by reason of a breach of fiduciary duty
described in section 404 of the Act or a violation of the prohibitions
of section 406 of the Act or section 4975 of the Code. Such insurance
coverage will be provided under a ``claims made'' policy. In the event
that Ibbotson changes insurers or ceases to provide the Service,
Ibbotson will maintain ``trail coverage'' with respect to claims made
during the period in which the policy was in effect for a period of
three years following such a change or cessation of the Service.
L. No Service Provider shall at any time own any interest, by vote
or value in Ibbotson, and neither Ibbotson nor any affiliate shall own
any interest, by vote or value, in a Service Provider.
M. The annual revenues derived by Ibbotson from any one Service
Provider shall not constitute more than 5% of the annual revenues of
Ibbotson.
N. Ibbotson will maintain for a period of six years, the records
necessary to enable the persons described in paragraph (O) of this
section to determine whether the conditions of the exemption are met,
including records of the recommendations made to Plan participants and
beneficiaries and their investment choices, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Ibbotson, the
records are lost or destroyed prior to the end of the six year period.
(2) No party in interest, other than Ibbotson 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 O(1) below.
O. (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 (N) 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,
[[Page 19531]]
(c) Any contributing employer to any participating Plan or 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 (O) shall be authorized to examine trade secrets of Ibbotson,
or commercial or financial information which is privileged or
confidential.
III. Definitions
A. The term ``Service'' means the asset allocation service provided
by Ibbotson 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 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.
C. The term ``independent fiduciary'' means a Plan fiduciary which
is independent of Ibbotson and its affiliates and independent of the
Service Provider and its affiliates.
D. The term ``affiliate'' 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, 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 benefit pension plan as
defined in section 3(2) of the Act.
Effective Date: This exemption is effective for transactions
occurring on or after January 22, 2001.
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 66 FR 6689 (January 22,
2001).
Written Comments
The Department received one comment from interested persons which
was submitted by Ibbotson (the Applicant).
Section I(C) describes the information that Ibbotson will provide
Plan participants. Specifically, I(C)(3) states: ``Access to Ibbotson's
web site or paper-based communications which will clearly indicate that
the Plan participant is receiving the Service from Ibbotson, and that
Ibbotson is independent of the Service Provider.'' In its comments, the
Applicant states that it has determined that access to the Service and
to information relating to thereto and to Ibbotson will be housed on
the website established and maintained by the Service Provider or by
another entity on the Service Provider's behalf, and not on a separate
Ibbotson website. The Applicant represented in its application, and as
stated in representations 5 and 6 of the Summary of Facts and
Representations of the Notice of proposed exemption, all
recommendations resulting from the use of the Service will be generated
by Ibbotson's proprietary forecasting engine, and that Ibbotson will
always retain sole control of the content of the Service and the advice
contained therein will monitor it. Thus, Ibbotson requests that the
text of Section I(C)(3) be modified to read ``Access to web site or
paper-based communications which will clearly indicate that the Plan
participant is receiving the Service from Ibbotson, and that Ibbotson
is independent of the Service Provider.'' The Department has made the
requested change. In light of this modification, the Department notes
that the first sentence of the third paragraph of representation 5 has
been changed to now read ``If a Plan participant elects to receive his/
her advice through the Internet, the Plan participant will access a
website provided by the Service Provider or the Plan sponsor where the
questionnaire and investment advice is housed.'' The second sentence of
this paragraph has been deleted.
Section I(C)(4) states ``A tolerance questionnaire which must be
completed prior to utilization of the Service.'' The Applicant requests
that the word ``tolerance'' be removed because it may be confusing to
participants who might then expect to receive a separate questionnaire
designed to evaluate risk tolerance. As stated in representation 5 of
the Summary of Facts and Representations, the questionnaire is designed
to evaluate a Plan participant's anticipated time horizon to
retirement, savings rate and other personal financial factors. The
Department has made the requested revision.
In its comments, the Applicant 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 January 22, 2001.
Lastly, at the request of the Applicant, in the second paragraph of
representation 8, the Department has replaced the number 40 with 70.
Thus, it now reads: ``Step 1: Generate return and inflation data.
Ibbotson's first step in this process is to generate hundreds of sets
of asset return and inflation data covering the next 70 years.''
FOR FURTHER INFORMATION CONTACT: Allison Padams Lavigne, U.S.
Department of Labor, (202)219-8971. (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
[[Page 19532]]
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 11th day of April, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 01-9348 Filed 4-13-01; 8:45 am]
BILLING CODE 4510-29-P
