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Secretary of Labor Thomas E. Perez
Prohibited Transaction Exemption 2001-46; Grant of Individual Exemption; Bank of America Corporation (BAC) [Notices] [12/12/2001]

EBSA (Formerly PWBA) Federal Register Notice

Prohibited Transaction Exemption 2001-46; Grant of Individual Exemption; Bank of America Corporation (BAC) [12/12/2001]

[PDF Version]

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