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Prohibited Transaction Exemption 2001-46; Grant of Individual Exemption; Bank of America Corporation (BAC) [12/12/2001]
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Volume 66, Number 239, Page 64280-64283
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Exemption Application No. D-10848]
Prohibited Transaction Exemption 2001-46; Grant of Individual
Exemption; Bank of America Corporation (BAC)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemption.
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SUMMARY: This document contains an exemption 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).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
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 exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Bank of America Corporation (BAC), Located in Charlotte, North
Carolina
[Prohibited Transaction Exemption 2001-46; Exemption Application No. D-
10848]
Exemption
Section I--Exemption for In-Kind Redemption of Assets
The restrictions of section 406(a) and 406(b) of ERISA 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, effective August 1, 2001,\1\ to certain in-kind redemptions (the
Redemptions) by the NationsBank Cash Balance Plan (the In-house Plan)
of shares (the Shares) of proprietary mutual funds (the Portfolios)
offered by investment companies for which Bank of America, N.A. (Bank
of America) or an affiliate thereof provides investment advisory and
other services (the Nations Funds).
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\1\ BAC anticipates that the Redemptions will take place on or
after August 1, 2001 and, for each Portfolio, will be completed in a
single transaction on a single day. However, the applicant
represents that different Portfolios may effect Redemptions on
different dates. As a result, reference to ``the Redemptions''
throughout this proposed exemption shall include all in-kind
redemptions of Shares made pursuant to the exemption regardless of
whether such redemptions are made on the same day.
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This exemption is subject to the following conditions:
(A) The In-house Plan pays no sales commissions, redemption fees,
or other similar fees in connection with the Redemptions (other than
customary transfer charges paid to parties other than Bank of America
and affiliates of Bank of America (Bank of America Affiliates));
(B) The assets transferred to the In-house Plan pursuant to the
Redemptions consist entirely of cash and Transferrable Securities.
Notwithstanding the foregoing, Transferrable Securities which are odd
lot securities, fractional shares and
[[Page 64281]]
accruals on such securities may be distributed in cash;
(C) With certain exceptions defined below, the In-house Plan
receives a pro rata portion of the securities of the Portfolio upon a
Redemption that is equal in value to the number of Shares redeemed for
such securities, as determined in a single valuation performed in the
same manner and as of the close of business on the same day in
accordance with the procedures set forth in Rule 17a-7 under the
Investment Company Act of 1940, as amended from time to time (the 1940
Act) (using sources independent of Bank of America and Bank of America
Affiliates);
(D) Bank of America, or any affiliate thereof, does not receive any
fees, including any fees payable pursuant to Rule 12b-1 under the 1940
Act in connection with any redemption of the Shares;
(E) Prior to a Redemption, Bank of America provides in writing to
an independent fiduciary, as such term is defined in section II (an
Independent Fiduciary), a full and detailed written disclosure of
information regarding the Redemption;
(F) Prior to a Redemption, the Independent Fiduciary provides
written authorization for such Redemption to Bank of America, such
authorization being terminable at any time prior to the date of the
Redemption without penalty to the In-house Plan, and such termination
being effectuated by the close of business following the date of
receipt by Bank of America of written or electronic notice regarding
such termination (unless circumstances beyond the control of Bank of
America delay termination for no more than one additional business
day);
(G) Before authorizing a Redemption, based on the disclosures
provided by the Portfolios to the Independent Fiduciary, the
Independent Fiduciary determines that the terms of the Redemption are
fair to the participants of the In-house Plan, and comparable to and no
less favorable than terms obtainable at arms-length between
unaffiliated parties, and that the Redemption is in the best interest
of the In-house Plan and its participants and beneficiaries;
(H) Not later than thirty (30) business days after the completion
of a Redemption, the relevant Fund will provide to an independent
fiduciary acting on behalf of the Plan (the Independent Fiduciary) a
written confirmation regarding such Redemption containing:
(i) The number of Shares held by the In-house Plan immediately
before the Redemption (and the related per Share net asset value and
the total dollar value of the Shares held),
(ii) the identity (and related aggregate dollar value) of each
security provided to the In-house Plan pursuant to the Redemption,
including each security valued in accordance with Rule 17a-7(b)(4),
(iii) the current market price of each security received by the In-
house Plan pursuant to the Redemption, and
(iv) the identity of each pricing service or market-maker consulted
in determining the value of such securities;
(I) The value of the securities received by the In-house Plan for
each redeemed Share equals the net asset value of such Share at the
time of the transaction, and such value equals the value that would
have been received by any other investor for shares of the same class
of the Portfolio at that time;
(J) Subsequent to a Redemption, the Independent Fiduciary performs
a post-transaction review which will include, among other things, a
random sampling of the pricing information supplied by Bank of America;
and
(K) Each of the In-house Plan's dealings with: the Nations Funds,
the investment advisors to the Nations Funds (the Investment Advisers),
the principal underwriter for the Nations Funds, or any affiliated
person thereof, are on a basis no less favorable to the In-house Plan
than dealings between the Nations Funds and other shareholders holding
shares of the same class as the Shares;
(L) The Bank maintains, or causes to be maintained, for a period of
six years from the date of any covered transaction such records as are
necessary to enable the persons described in paragraph (M) below to
determine whether the conditions of this exemption have been met,
except that (i) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Bank of
America, the records are lost or destroyed prior to the end of the six-
year period, (ii) no party in interest with respect to the In-house
Plan other than Bank of America 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 such records are not
maintained or are not available for examination as required by
paragraph (M) below.
(M) (1) Except as provided in subparagraph (2) of this paragraph
(M), and notwithstanding any provisions of section 504(a)(2) and (b) of
the Act, the records referred to in paragraph (L) above are
unconditionally available at their customary locations for examination
during normal business hours by (i) any duly authorized employee or
representative of the Department of Labor, the Internal Revenue
Service, or the Securities and Exchange Commission, (ii) any fiduciary
of the In-House Plan or any duly authorized representative of such
fiduciary, and (iii) any participant or beneficiary of the In-House
Plan or duly authorized representative of such participant or
beneficiary.
(2) None of the persons described in paragraphs (M)(1)(ii) and
(iii) shall be authorized to examine trade secrets of Bank of America
or the Nations Funds, or commercial or financial information which is
privileged or confidential.
Section II--Definitions
For purposes of this exemption,
(A) The term ``affiliate'' means:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) any officer, director, employee, relative, or partner in any
such person; and
(3) any corporation or partnership of which such person is an
officer, director, partner, or employee.
(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 ``net asset value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in the Portfolio's
prospectus and statement of additional information, and other assets
belonging to the Portfolio, less the liabilities charged to each such
Portfolio, by the number of outstanding shares.
(D) The term ``Independent Fiduciary'' means a fiduciary who is:
(i) independent of and unrelated to Bank of America and its affiliates,
and (ii) appointed to act on behalf of the In-house Plan with respect
to the in-kind transfer of assets from one or more Portfolios to or for
the benefit of the In-house Plan. For purposes of this exemption, a
fiduciary will not be deemed to be independent of and unrelated to Bank
on America if: (i) Such fiduciary directly or indirectly controls, is
controlled by or is under common control with Bank of America, (ii)
such fiduciary directly or indirectly receives any compensation or
other consideration in connection with any transaction described in
this exemption; except that an independent fiduciary may receive
compensation from Bank of
[[Page 64282]]
America in connection with the transactions contemplated herein if the
amount or payment of such compensation is not contingent upon or in any
way affected by the independent fiduciary's ultimate decision, (iii)
more than three percent (3%) of such fiduciary's gross income, for
federal income tax purposes, in its current tax year, will be paid by
Bank of America and its affiliates in the fiduciary's current tax year,
or (iv) for the period comprising the tax years in which the
independent fiduciary represents the In-house Plan, more than two
percent (2%) of such fiduciary's aggregate gross income over such
period will be paid by Bank of America and its affiliates.
(E) The term ``Transferable Securities'' shall mean securities (1)
for which market quotations are readily available as determined under
Rule 17(a)-7 of the 1940 Act; and (2) which are not: (i) Securities
which may not be publicly offered or sold without registration under
the 1933 Act; (ii) securities issued by entities in countries which (a)
restrict or prohibit the holding of securities by non-nationals other
than through qualified investment vehicles, such as the Nations Funds,
or (b) permit transfers of ownership or securities to be effected only
by transactions conducted on a local stock exchange; (iii) certain
portfolio positions (such as forward foreign currency contracts,
futures and options contracts, swap transactions, certificates of
deposit and repurchase agreements) that, although they may be liquid
and marketable, involve the assumption of contractual obligations,
require special trading facilities or can only be traded with the
counter-party to the transaction to effect a change in beneficial
ownership; (iv) cash equivalents (such as certificates of deposit,
commercial paper and repurchase agreements); and (v) other assets which
are not readily distributable (including receivables and prepaid
expenses), net of all liabilities (including accounts payable).
(F) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of ERISA (or a ``member of the family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
sister, or a spouse of a brother or a sister.
Written Comments
The Department received 28 written comments with respect to the
proposed exemption. Of this amount, 27 comments sought clarification as
to the terms of the proposed exemption. The remaining comment was
submitted by BAC. In its letter, BAC stated the following:
(1) The Nations Managed SmallCap Index Fund was incorrectly
identified in the proposed exemption (and exemption application) as the
Nations Managed SmallCap Value Index Fund;
(2) The amount of fiduciary assets under BAC management was
incorrectly stated in the proposed exemption (and exemption
application) as totaling $231,000,000. Such amount, the applicant
states, is $231,000,000,000;
(3) The heading of the proposed exemption should state that Bank of
America is located in Charlotte, North Carolina.
In addition, in its letter to the Department, BAC stated that the
names of certain parties to the proposed transaction have changed. In
this regard, ``Bank of America Advisors, Inc.'' is now ``Banc of
America Advisors, LLC'', and ``TradeStreet Investment Associates,
Inc.'' is now ``Banc of America Capital Management, LLC''. In addition,
BAC stated that the ``NationsBank Cash Balance Plan'' is now ``The Bank
of America Pension Plan''.
BAC stated further that an additional Portfolio, the ``Nations
MidCap Index Fund'', was added as an investment option to BAC's in-
house plans in July 2000. Such portfolio may therefore be affected by
the exemption. In addition, of the various Nations Funds and Portfolios
affected by the exemption, the following have changed their names:
``Nations Disciplined Equity Fund'' is now ``Nations Aggressive Growth
Fund'; ``Nations Equity Index Fund'' is now ``Nations LargeCap Index
Fund'; ``Nations Emerging Growth Fund'' is now ``Nations MidCap Growth
Fund'; ``Nations Managed SmallCap Index Fund'' is now ``Nations
SmallCap Index Fund'; and ``Nations Small Company Growth Fund'' is now
``Nations Small Company Fund''.
Finally, BAC requests that the definition of Independent Fiduciary,
as such term is defined in section II(D) of the proposed exemption, be
modified. In this regard, BAC represents that, after reviewing several
possible candidates for the position of independent fiduciary with
respect to the transactions described herein, it specifically chose IFS
to represent the In-house Plan. This decision was based on, among other
things, the experience, qualifications and reputation IFS had
representing ERISA plans in transactions similar to those contained in
this exemption. BAC represents that, in addition to being so qualified,
the income IFS has or will receive from BAC or any affiliate in
association with the in-kind redemptions is of an amount which ensures
IFS's independence. In this regard, BAC represents that for the period
beginning on the date IFS was appointed to represent the In-house Plan
and ending on the date the last in-kind redemption is expected to
occur, the amount of income IFS will have received from BAC or any
affiliate thereof will be less than 2% of IFS's aggregate gross taxable
income over such period.
The Department recognizes that, in certain instances, proper
representation of a plan may require that an independent plan fiduciary
provide a level of services which varies greatly over time. In
consideration of, among other things, the size and nature of the
transaction involved in this exemption, the Department has decided to
modify section II(D) of the proposed exemption to read as follows:
(D) The term ``Independent Fiduciary'' means a fiduciary who is:
(i) independent of and unrelated to Bank of America and its affiliates,
and (ii) appointed to act on behalf of the In-house Plan with respect
to the in-kind transfer of assets from one or more Portfolios to or for
the benefit of the In-house Plan. For purposes of this exemption, a
fiduciary will not be deemed to be independent of and unrelated to Bank
on America if: (i) Such fiduciary directly or indirectly controls, is
controlled by or is under common control with Bank of America, (ii)
such fiduciary directly or indirectly receives any compensation or
other consideration in connection with any transaction described in
this exemption; except that an independent fiduciary may receive
compensation from Bank of America in connection with the transactions
contemplated herein if the amount or payment of such compensation is
not contingent upon or in any way affected by the independent
fiduciary's ultimate decision, (iii) more than three percent (3%) of
such fiduciary's gross income, for federal income tax purposes, in its
current tax year, will be paid by Bank of America and its affiliates in
the fiduciary's current tax year, or (iv) for the period comprising the
tax years in which the independent fiduciary represents the In-house
Plan, more than two percent (2%) of such fiduciary's aggregate gross
income over such period will be paid by Bank of America and its
affiliates.
Finally, as stated in footnote 6 of the proposed exemption, BAC
represented that certain redeemed securities may have different
purchase dates and tax bases attached to them as compared with
otherwise identical securities remaining in a Portfolio. BAC
subsequently clarified this point by noting that for each issue of
securities held by a Portfolio, basis will be
[[Page 64283]]
allocated pro rata between the securities to be transferred to the In-
house Plan and the securities which are to remain in the Portfolio.
Accordingly, after giving full consideration to the entire record,
including the written comments noted above, the Department has decided
to grant the exemption.
For further information regarding the comments and other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-10848) 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 Disclosure Room of
the Pension and Welfare Benefits Administration, Room N-1513, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210.
FOR FURTHER INFORMATION CONTACT: Christopher Motta of the Department,
telephone (202) 693-8544 (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 exemption 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) This exemption is 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 this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 6th day of December, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits,
Administration, U.S. Department of Labor.
[FR Doc. 01-30756 Filed 12-11-01; 8:45 am]
BILLING CODE 4510-29-P
