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Secretary of Labor Thomas E. Perez
Proposed Amendment to Prohibited Transaction Exemption 96-62 (PTE 96-62) To Permit Certain Authorized Transactions Between Plans and Parties in Interest [Notices] [03/20/2002]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Amendment to Prohibited Transaction Exemption 96-62 (PTE 96-62) To Permit Certain Authorized Transactions Between Plans and Parties in Interest [03/20/2002]

[PDF Version]

Volume 67, Number 54, Page 13019-13021


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DEPARTMENT OF LABOR

Pension Welfare Benefits Administration

[Application No: D-10936]

 
Proposed Amendment to Prohibited Transaction Exemption 96-62 (PTE 
96-62) To Permit Certain Authorized Transactions Between Plans and 
Parties in Interest

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Notice of proposed amendment to PTE 96-62.

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SUMMARY: This document contains a notice of pendency before the 
Department of a proposed amendment to PTE 96-62 (61 FR 39988, July 31, 
1996). PTE 96-62 permits certain prospective transactions between 
employee benefit plans and parties in interest where such transactions 
are specifically authorized by the Department and are subject to terms, 
conditions and representations which are substantially similar to two 
individual exemptions granted by the Department within the 60 month 
period ending on the date of filing of a written submission seeking 
authorization for the transaction. If adopted, the proposed amendment 
would affect plans, participants and beneficiaries of such plans and 
certain persons engaging in such transactions.

DATES: Written comments and requests for a public hearing must be 
received by the Department on or before May 6, 2002.

ADDRESSES: All written comments and requests for a public hearing 
(preferably, at least three copies) should be addressed to: U.S. 
Department of Labor, Office of Exemption Determinations, Attention: D-
10936, Pension and Welfare Benefits Administration, Room N-5649, 200 
Constitution Ave., NW, Washington, DC 20210. Interested persons are 
also invited to submit comments and/or hearing requests to PWBA via e-
mail or fax. Any such comments should be sent either by e-mail to 
padamsa@pwba.dol.gov or by fax at (202) 219-0204 by the end of the 
scheduled comment period. All comments received will be available for 
public inspection at the Public Documents Room, Pension and Welfare 
Benefits Administration, U.S. Department of Labor, Room N-1513, 200 
Constitution Ave., NW, Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Allison Padams Lavigne, Office of 
Exemption Determinations, Pension and Welfare Benefits Administration, 
U.S. Department of Labor, (202) 693-8540 (This is not a toll-free 
number).

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed amendment to PTE 96-62. PTE 96-62 
provides relief from a restriction described in sections 406(a) and 
406(b) of the Employee Retirement Income Security Act (ERISA or the 
Act) or a parallel restriction described in section 8477(c)(2) of the 
Federal Employees' Retirement Systems Act (FERSA), and from the taxes 
imposed by section 4975(a) and (b) of the Internal Revenue Code of 1986 
(the Code), by reason of a parallel provision described in section 
4975(c)(1)(A) through (F) of the Code. The Department is proposing this 
amendment to PTE 96-62, on its own motion pursuant to section 408(a) of 
ERISA and section 4975(c)(2) of the Code and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
August 10, 1990).\1\
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978 (5 U.S.C. 
App. 1 (1996)) generally transferred the authority of the Secretary 
of the Treasury to issue administrative exemptions under section 
4975(c)(2) of the Code to the Secretary of Labor.
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Background

    The rules set forth in section 406 of ERISA prohibit various 
transactions between employee benefit plans covered by Title I of ERISA 
and certain related parties, unless a statutory or administrative 
exemption applies to the transaction. These related parties, such as 
plan fiduciaries, sponsoring employers, unions and service providers 
are defined as parties in interest in section 3(14) of ERISA, and, in 
the absence of an exemption, may not engage in transactions described 
in section 406 of ERISA with a plan.
    Specifically, section 406(a)(1) prohibits a fiduciary of a plan 
from causing the plan to engage in a transaction that constitutes a 
direct or an indirect: sale, exchange or leasing of any property 
between the plan and a party in interest; lending of money or other 
extension of credit between the plan and a party in interest; 
furnishing of goods, services or facilities between the plan and a 
party in interest; transfer to, or use by or for the benefit of a party 
in interest of any assets of the plan or acquisition on behalf of the 
plan of any employer security or real property in violation of section 
407(a) of ERISA. Section 406(a)(2) provides that no fiduciary who has 
authority or discretion to control or manage plan assets shall permit 
the plan to hold any employer security or employer real property if he 
knows or should know that holding such security or real property 
violates section 407(a) of ERISA. Section 406(b) prohibits a fiduciary, 
with respect to a plan, from dealing with the assets of the plan in his 
own interest or for his own account; acting in his individual capacity 
or in any other capacity in any transaction involving the plan on 
behalf of a party (or representing a party) whose interests are adverse 
to the interests of the plan or interests of the participants or 
beneficiaries; and receiving any consideration for his own personal 
account from any party dealing with such plan in connection with a 
transaction involving the assets of the plan. In addition, such 
transactions that involve plans described in section 4975(e)(1) of the 
Code are generally subject to taxation under section 4975 of the Code. 
Lastly, the restrictions of section 8477(c)(2) of FERSA parallel 
section 406(b) of ERISA.
    The Department has frequently exercised its statutory authority 
under section 408(a) of ERISA to grant both individual and class 
exemptions from the restrictions imposed by section 406 of ERISA where 
it has been able to find that the statutory criteria have been met.\2\ 
This process has been helpful in providing exemptive relief for 
transactions which were prohibited, but were otherwise in the interests 
of the plans, participants and beneficiaries.
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    \2\ Section 408(a) of ERISA provides, in part, that the 
Department may not grant an exemption unless a finding is made that 
such exemption is administratively feasible, in the interests of the 
plan and of its participants and beneficiaries of such plan and 
protective of the rights of participants and beneficiaries of such 
plan.
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    The Department has promulgated an exemption procedure \3\ which 
provides, among other things, that an exemption will not be granted 
until a notice of pendency has been published in the Federal Register, 
and interested persons have been given an opportunity to comment on the 
proposed transaction. Following consideration of the entire record, the 
Department then makes its final determination whether to grant the 
exemption. If the Department contemplates not granting the requested 
exemption, the procedure also provides an applicant with the right to a 
conference.
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    \3\ See 29 CFR part 2570, subpart B (55 FR 32836, August 10, 
1990).
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    Based on its experience in considering exemption applications, the 
Department has observed that many of the applications present routine 
transactions involving terms, conditions and circumstances which are 
substantially similar to those described

[[Page 13020]]

in previously granted individual exemptions. In fact, many exemption 
applicants have made it a practice to consult previously granted 
exemption files in the preparation of their submissions. Such 
applicants often submit applications containing nearly identical 
transactions, terms and conditions to those previously granted. Since 
the enactment of ERISA, the Department has exempted a large number of 
recurring transactions, including loans, leases and sales of real 
property. As a result, standard terms and conditions have developed 
over time which assure that the transaction is protective of the plan's 
interest.
    The Department granted PTE 96-62 in 1996, in an effort to reduce 
regulatory burdens associated with processing individual exemptions 
from the prohibited transaction provisions of ERISA. Effective July 31, 
1996, PTE 96-62 provides a mechanism for expediting consideration of 
those routine transactions which are similar to those that have been 
previously considered by the Department in prior exemption proceedings, 
without sacrificing the interests of the plan participants and 
beneficiaries. Accordingly, the exemption is available to a party 
proposing to engage in a prohibited transaction, if the party can 
demonstrate to the Department that such transaction and the material 
terms, conditions and representations therein are substantially similar 
to at least two individual exemptions previously granted by the 
Department.
    Section I of PTE 96-62 provides relief from certain of the 
restrictions described in section 406(a) of ERISA and from the taxes 
imposed by section 4975(a) and (b) of the Code, by reason of a parallel 
provision described in section 4975(c)(1)(A) through (D) of the Code, 
for a transaction between a plan and a party in interest with respect 
to such plan, provided the conditions of the exemption are met. Under 
section II, additional relief is provided from certain of the 
restrictions described in section 406(b) of ERISA and the parallel 
restrictions described in section 8477(c)(2) of FERSA, as well as from 
the taxes imposed by section 4975(a) and (b) of the Code, by reason of 
a parallel provision described in section 4975(c)(1)(E) and (F). 
Sections I(a) and II(a) require that the transaction be substantially 
similar (as defined in section IV(a) of PTE 96-62) to transactions 
described in at least two individual exemptions that were granted by 
the Department, and which provided relief from the same restrictions as 
requested by the party, within the 60-month period ending on the date 
of filing of the written submission.\4\
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    \4\ Section IV(a) defines the term ``substantially similar'' to 
mean alike in all material respects as determined by the Department, 
in its sole discretion.
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    As a result of the program's success, the number of requests for 
individual exemptions relating to routine transactions has decreased. 
Thus, the Department is concerned that, in the near future, parties 
wishing to seek authorization for transactions pursuant to PTE 96-62 
will not be able to find two substantially similar individual 
exemptions which were granted by the Department within the required 60-
month time period.\5\ Accordingly, in order to assist parties who in 
the future wish to utilize the exemptive relief provided by PTE 96-62, 
the Department is proposing to expand Sections I(a) and II(a) to permit 
parties to either base their submission on substantially similar 
transactions described in two individual exemptions granted within the 
past 60-months; or on one individual exemption granted within the past 
120-months and one transaction which received final authorization by 
the Department under PTE 96-62 within the past 60-months (the 
Authorized Transaction). The Department believes that the alternate 
method for satisfying the requirements of sections I(a) and II(a) will 
continue to ensure that the transactions that the party compares to its 
proposed transaction reflect the current policies of the Department.
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    \5\ In this regard, transactions which are authorized pursuant 
to PTE 96-62 cannot be relied on by parties wishing to engage in 
similar transaction pursuant to PTE 96-62 because that exemption is 
limited to those transactions which were the subject of individual 
exemptions granted in accordance with the Department's exemption 
procedure.
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    As of November 2001, over 160 transactions have been authorized by 
the Department under PTE 96-62. The Department maintains, on its 
website (www.dol.gov/pwba/programs/oed/oednew20.htm) a list 
of Authorized Transactions. This list includes the following 
information: the final authorization numbers, the name of the 
applicants, a description of the transactions, and the grant numbers 
and Federal Register citations of the exemptions on which the 
submissions were based. Parties wishing to base their submission on an 
Authorized Transaction will be able to refer to the submission 
previously filed by parties under PTE 96-62 and to the two granted 
individual exemptions identified as substantially similar for 
additional information regarding the subject transactions.\6\
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    \6\ All files are available for public inspection at the Public 
Documents Room, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Ave., NW, 
Washington, DC 20210.
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    The Department notes that all other conditions contained in PTE 96-
62 must continue to be satisfied with respect to those parties seeking 
to base their submission on an Authorized Transaction rather than on 
two substantially similar individual exemptions. Accordingly, these 
parties should submit, among other things, a comparison of the proposed 
transaction with the Authorized Transaction and the transaction which 
was the subject of the individual exemption, including an explanation 
as to why any differences should not be considered material.

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 section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of ERISA and the Code to which the 
exemption does not expressly apply and the general fiduciary provisions 
of section 404 of ERISA. Section 404 requires, in part, that a 
fiduciary discharge his or her duties respecting the plan solely in the 
interest of participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of ERISA. This 
exemption, if granted does not affect the requirement of section 401(a) 
of the Code that a plan must operate for the exclusive benefit of the 
employees of the employer maintaining the plan and their beneficiaries;
    (2) Before any exemption may be granted under section 408(a) of 
ERISA and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interests of the 
plan(s) and of participants and beneficiaries, and protective of the 
rights of the participants and beneficiaries of the plan(s);
    (3) This proposed amendment is supplemental to and not in 
derogation of any other provisions of ERISA or the Code, including 
statutory or administrative exemptions and transitional 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
    (4) If granted, the proposed amendment will be applicable to a 
transaction only if the transaction

[[Page 13021]]

satisfies the conditions specified in the class exemption.

Written Comments and Requests for Hearing

    All interested persons are invited to submit written comments or 
requests for a public hearing on the proposed amendment to the address 
or the fax number noted above within the time period set forth above. 
All comments received will made a part of the record of this proceeding 
and will be available for public inspection.

Proposed Amendment

    Under the authority of section 408(a) of ERISA and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR 2570, subpart B (55 FR 32836, August 10, 1990), the 
Department proposes to amend PTE 96-62 as set forth below:
    (1) Section I(a) is amended to read ``The transaction is 
substantially similar (as defined in section IV(a) to transactions 
described in: (a) At least two individual exemptions that were granted 
by the Department, and provided relief from the same restriction, 
within the 60-month period ending on the date of filing of the written 
submission referred to in section III(a); or (b) one individual 
exemption that was granted by the Department, and provided relief from 
the same restriction, within the 120-month period ending on the date of 
filing the written submission referred to in section III(a), and at 
least one Authorized Transaction (as defined in section IV(g));''
    (2) Section II(a) is amended to read ``The transaction is 
substantially similar (as defined in section IV(a) to transactions 
described in: (a) At least two individual exemptions that were granted 
by the Department, and provided relief from the same restriction, 
within the 60-month period ending on the date of filing of the written 
submission referred to in section III(a); or (b) one individual 
exemption that was granted by the Department, and provided relief from 
the same restriction, within the 120-month period ending on the date of 
filing the written submission referred to in section III(a), and at 
least one Authorized Transaction (as defined in section IV(g));''
    (3) Section III(a)(4) is amended to read ``a comparison of the 
proposed transaction to at least two substantially similar transactions 
which were the subject of individual exemptions granted by the 
Department, or an individual exemption granted by the Department and an 
Authorized Transaction, and an explanation as to why any differences 
should not be considered material for purposes of this exemption;''
    (4) Section IV(b)(6) is amended to read ``the Federal Register 
citations for the prior exemption(s) and/or the final authorization 
number of the Authorized Transaction (including the related Federal 
Register citations for the prior exemptions cited therein)identified by 
the party as substantially similar to the contemplated transaction.''
    (5) Section IV(g) is added to read: ``The term Authorized 
Transaction means a transaction that has received final authorization 
pursuant to PTE 96-62 within a 60-month period ending on the date of 
the filing of the written submission referred to in section III(a).''

    Signed at Washington, DC this 15th day of March 2002.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Pension and Welfare 
Benefits Administration, U.S. Department of Labor.
[FR Doc. 02-6770 Filed 3-19-02; 8:45 am]
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