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Secretary of Labor Thomas E. Perez
Proposed Class Exemption To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program [Notices] [03/28/2002]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Class Exemption To Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program [03/28/2002]

[PDF Version]

Volume 67, Number 60, Page 15083-15089

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PENSION AND WELFARE BENEFITS ADMINISTRATION

[Application No. D-10933]

 
Proposed Class Exemption To Permit Certain Transactions 
Identified in the Voluntary Fiduciary Correction Program

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

ACTION: Notice of proposed class exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed class exemption from 
certain prohibited transaction restrictions of the Internal Revenue 
Code of 1986 (the Code). This exemption is being proposed in 
conjunction with the Department's Voluntary Fiduciary Correction (VFC) 
Program, the final version of which is being published simultaneously 
in this issue of the Federal Register, which allows certain persons to 
avoid potential civil actions under the Employee Retirement Income 
Security Act of 1974 (ERISA) initiated by the Department and the 
assessment of civil penalties under section 502(l) of ERISA in 
connection with investigation or civil action by the Department. If 
granted, the proposed exemption would affect plans, participants and 
beneficiaries of such plans and certain other persons engaging in such 
transactions.

DATES: Written comments and requests for a public hearing must be 
received by

[[Page 15084]]

the Department on or before May 13, 2002.

ADDRESSES: All written comments (at least three copies) and requests 
for a public hearing should be sent to: Office of Exemption 
Determinations, Pension and Welfare Benefits Administration, Room N-
5649, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210, (attn: D-10933). Written comments may also be 
sent by e-mail to moffittb@pwba.dol.gov or by FAX to (202) 219-0204. 
Comments received from interested persons will be available for public 
inspection in the Public Documents Room, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution 
Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Karen Lloyd, Office of Exemption 
Determinations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5649, 200 Constitution Avenue, NW., 
Washington, DC 20210, (202) 693-8540 (not a toll free number) or 
Cynthia Weglicki, Plan Benefits Security Division, Office of the 
Solicitor, (202) 693-5600 (not a toll free number).

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed class exemption from the taxes 
imposed by section 4975(a) and (b) of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code. The Department is proposing the 
class exemption on its own motion pursuant to 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).\1\
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978, 5 U.S.C. App. 1 [1995]) generally 
transferred the authority of the Secretary of the Treasury to issue 
administrative exemptions under section 4975 of the Code to the 
Secretary of Labor.
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Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it was determined 
that this action is ``significant'' under Section 3(f)(4) of the 
Executive Order. Accordingly, this action has been reviewed by OMB.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.
    Currently, the Pension and Welfare Benefits Administration (PWBA) 
is soliciting comments concerning the information collection request 
(ICR) included in the proposed Class Exemption to Permit Certain 
Transactions Identified in the Voluntary Fiduciary Correction Program. 
The information collection provisions of the proposed Class Exemption 
would revise the currently approved collection of information included 
in PWBA's Voluntary Fiduciary Correction Program, which is published 
simultaneously in the Federal Register. A copy of the ICR may be 
obtained by contacting the Pension and Welfare Benefits Administration 
office listed below.
    Comments pertaining to the ICR should be sent to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 10235, New Executive Office Building, Washington, DC 20503; 
Attention: Desk Officer for the Pension and Welfare Benefits 
Administration. Although comments may be submitted through May 28, 
2002, OMB requests that comments be received within 30 days of 
publication of the Notice of Proposed Class Exemption to ensure their 
consideration.
    Address requests for copies of the ICR to Gerald B. Lindrew, Office 
of Policy and Research, U.S. Department of Labor, Pension and Welfare 
Benefits Administration, 200 Constitution Avenue, NW., Room N-5647, 
Washington, DC 20210. Telephone (202) 693-8410; fax: (202) 219-4745. 
These are not toll-free numbers.
    The Department has submitted a copy of the proposed revision of the 
information collection request to OMB in accordance with 44 U.S.C. 
3507(d) for review and clearance. The Department and OMB are 
particularly interested in comments that:
     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    On March 15, 2000, the Department of Labor published a Notice in 
the Federal Register (65 FR 14164), announcing the adoption of a 
Voluntary Fiduciary Correction Program (VFC Program). The purpose of 
the VFC Program is to encourage plan fiduciaries to make full 
correction of certain eligible transactions without fear of civil 
investigation or litigation. The VFC Program, upon proper application, 
correction, and receipt of a ``no action'' letter from the Department, 
provided relief to Plan Officials from civil penalties under section 
502(l) of ERISA for breaches of fiduciary responsibility. The Notice 
requested comments from the public on all aspects of the Program. 
Responses indicate that the Program was generally well received by the 
public. Several commenters, however, while acknowledging the importance 
of Program relief from section 502(l) of ERISA, also requested 
additional relief from the tax on prohibited transactions under section 
4975 of the Code. Section 4975(a) of the Code imposes a tax on each 
prohibited transaction at a rate of

[[Page 15085]]

15 percent of the amount involved with respect to the prohibited 
transaction for each year (or part thereof) in the taxable period. The 
commenters suggested that providing excise tax relief would benefit 
employee benefit plans, participants, and beneficiaries by further 
encouraging Plan Officials to protect plan assets through correction of 
eligible transactions under the VFC Program. Moreover, the lack of 
protection from the sanctions of section 4975 of the Code was 
considered a disincentive to participation in the VFC Program. Because 
the goal of the Department in establishing the VFC Program was to 
encourage correction of fiduciary breaches and restoration of losses to 
participants and beneficiaries, the Department concluded that it would 
be appropriate to provide limited relief in the form of a Prohibited 
Transaction Class Exemption from the sanctions of section 4975 of the 
Code. This proposed exemption describes four prohibited transactions 
from among those transactions eligible for correction under the VFC 
Program as transactions suitable for relief from the tax obligations of 
sections 4975(a) and (b) of the Code. Plan Officials intending to take 
advantage of the exemption must comply with the requirements of the VFC 
Program. In addition, in order to appropriately protect the interests 
of participants and beneficiaries, the Department has elected to 
require Plan Officials intending to take advantage of the exemption to 
notify interested persons such as participants and beneficiaries of the 
plan. Plan Officials also will be required to send a copy of the notice 
to the appropriate Regional Office of the Pension and Welfare Benefits 
Administration. The notice must include an objective description of the 
transaction and the steps taken to correct it. Because section 
4975(c)(2) of the Code requires an exemption to be in the interests of 
a plan as well as protective of its participants and beneficiaries 
before it can be granted, interested persons must be given adequate 
notice of the pending exemption and an opportunity to comment. Comments 
from participants and beneficiaries will contribute to the Department's 
understanding of the facts as described in the VFC Program application. 
Interested persons and the Department must receive the notice within 60 
days following the date of submission of an application under the VFC 
Program. Beginning on the date of distribution of the notice, 
recipients will have 30 calendar days to provide comments to a Regional 
Office; the notice must include the address and telephone number of 
such Regional Office. Notification may be given in any manner that is 
reasonably calculated to result in the receipt of such notice by 
interested persons, including but not limited to posting, regular mail, 
or electronic mail. The use of the exemption is not required for 
participation in the Program. The relief provided by the class 
exemption is not available without participation in the VFC Program, 
and, as such, the exemption's notice requirement is treated as a 
revision of the existing VFC Program ICR.
    The VFC Program describes certain transactions that are breaches of 
fiduciary duty under Part 4 of Title I of ERISA and that may be 
corrected under the Program. Because the VFC Program is new, there is 
as yet insufficient data on the type or the number of eligible 
transactions that will be corrected under the Program to support a 
revision of the original estimates of participation. Based on the 
Department's experience with the Pension Payback Program, which dealt 
only with employee contributions and realized corrections by 0.1 per 
cent of all eligible plans, and allowing for the inclusion of 
additional transactions for correction under the VFC Program, the 
Department estimates that there will be 700 applicants to the VFC 
Program. All Plan Officials that apply to the VFC Program will not 
necessarily take advantage of the excise tax relief provided under this 
exemption, either by choice or because the corrected transaction is not 
an eligible transaction to which this exemption applies. For the 
purpose of computing the hour and cost burdens under the PRA, 
therefore, the Department has assumed that one half of all Plan 
Officials that choose to take advantage of the opportunity to correct a 
breach under the VFC Program, or 350 Plan Officials, will also choose 
to avail themselves of the opportunity for excise tax relief.
    Because the information to be provided to interested persons in the 
notice is readily available in the documentation previously submitted 
as part of the application to the VFC Program, it is likely that a Plan 
Official that used the services of a professional to apply to the VFC 
Program will use the same professional to prepare the notice under the 
exemption. The Department estimates that it will take approximately one 
hour of a professional's time, or 350 total hours, to produce the 
notice to interested persons. At $70 an hour for a professional's time, 
the cost to Plan Officials is $24,500.
    Plan officials must distribute the notice in a manner that is 
reasonably calculated to result in the receipt of such notice by 
interested persons. Notices are commonly distributed in one of three 
ways--posting, electronic mail, or regular mail. The Department assumes 
that only 10% of the applicants availing themselves of the exemption, 
or 35 Plan Officials, will choose to distribute the notice by regular 
mail. Based on an estimate of 88,000 participants in plans affected by 
the VFC Program, 44,000 of which will be in plans assumed to make use 
of the exemption, 4,400 participants and beneficiaries will receive a 
notice by regular mail. The cost of mailing 4,400 notices, at $.34 per 
mailing, results in an additional cost of $1,496. Because of the cost 
savings, most applicants will likely choose to use either posting or 
electronic mail as a means of distribution. Applying these methods of 
distribution, the time required to transfer the notice electronically 
or to post it in an appropriate place is minimal; the Department has 
therefore not accounted for a cost burden for notification under either 
of these choices. Distributing the notice by posting or electronic mail 
would therefore represent a cost savings of $13,500. The total cost of 
preparing and distributing the notice under the exemption is $25,996 
($24,500 for a service provider's time and $1,496 for distribution by 
regular mail).
    Preparation of the mailing is likely to be done in-house by 
clerical staff. For 4,400 interested persons, 1\1/2\ minutes of a 
clerical worker's time per interested person results in a total hour 
burden of 110 hours.
    Type of Review: Revision of a currently approved collection of 
information.
    Agency: Pension and Welfare Benefits Administration, Department of 
Labor.
    Title: Voluntary Fiduciary Correction Program.
    OMB Number: 1210-0118.
    Affected Public: Business or other for-profit; Not-for-profit 
institutions.
    Respondents: 700.
    Frequency of Response: On occasion.
    Responses: 700.
    Estimated Total Burden Hours: 5,600 for existing ICR; 110 for 
proposed exemption; total of 5,710 hours.
    Total Burden Cost (Operating and Maintenance): $246,400 for 
existing ICR; $25,996 for proposed exemption; total of $272,396.
    Comments submitted in response to this notice will be summarized 
and/or included in the request for OMB approval of the information 
collection

[[Page 15086]]

request; they will also become a matter of public record.

Economic Analysis

    Establishing a class exemption to be used in conjunction with the 
Voluntary Fiduciary Correction Program (VFC Program) will have positive 
economic effects for employee benefit plans by promoting increased 
participation in the VFC Program. The purpose of the VFC Program is to 
encourage the correction of breaches of fiduciary duty under ERISA, 
resulting in the restoration of plan assets to the benefit of 
participants and beneficiaries. Under the VFC Program, fiduciaries are 
relieved of the possibility of civil action and the assessment of civil 
penalties under Section 502(l) of ERISA. The proposed exemption would 
enhance the benefits of participation in the VFC Program by granting 
relief from excise taxes under Section 4975 of the Internal Revenue 
Code for breaches of duty that are prohibited transactions.
    Although plans have benefitted from the Interim VFC Program, we 
believe that fewer plans have taken advantage of the Interim VFC 
Program than might have with the inclusion of the proposed exemption. 
Comments received in response to the publication of the Interim VFC 
Program support this conclusion. Commenters indicate that, because 
participation in the VFC Program is voluntary, the lack of Section 4975 
tax relief has been a disincentive to participation. This is borne out 
by information from the earlier Pension Payback Program (61 FR 9203, 
March 7, 1996) that experienced a .1% rate of participation among 
pension plans. (The Pension Payback Program was limited to the 
correction of delinquent participant contributions only.) A significant 
difference between the Interim VFC Program and the Pension Payback 
Program is the inclusion of excise tax relief under the latter. 
Allowing for the inclusion of three more categories of transactions for 
correction than were included in the Pension Payback Program, it is 
expected that participation in the VFC Program will increase because of 
the proposed exemption.
    The benefits to plans outweigh any additional cost created by the 
proposed exemption. Department projections indicate that an average of 
$114,000 per plan, or approximately $80 million for all plans expected 
to participate in the VFC Program, will be restored to employee benefit 
plans. The Department estimates that 350 plans, or one half the number 
of anticipated participants in the VFC Program, will apply as a result 
of the relief offered by the proposed exemption. Approximately $40 
million in assets will therefore be restored to plans as a result of 
the proposed exemption. The assets are then available for distribution 
to participants and beneficiaries or for additional investment 
opportunities. (The costs and benefits of the VFC Program have been 
described in more detail in the preamble for the Adoption of the VFC 
Program.) The economic benefit of the proposed exemption, in addition 
to the tax relief permitted fiduciaries, is therefore realized through 
increased participation in the VFC Program.
    Fiduciaries that participate in the VFC Program will experience 
savings in civil penalties under section 502(l) of ERISA. For the 350 
plans that participate in the VFC Program as a result of the proposed 
exemption, the elimination of 502(l) penalties for fiduciaries accounts 
for $2.7 million. The civil penalty savings are in addition to excise 
tax savings under section 4975 of the Internal Revenue Code that 
fiduciaries may realize after satisfying certain conditions of the 
proposed exemption.
    The cost for the proposed exemption is minimal--the result of 
notifying interested persons and the Department that a fiduciary 
intends to take advantage of the exemption, or approximately $70-$130 
per plan ($24,500-$45,500 for 350 plans), depending on the method of 
notification selected.
    In consideration of the comments received and the Department's 
experience with the Pension Payback Program, the Department believes 
that the proposed exemption will have a positive effect on applications 
to the VFC Program resulting in an economic benefit to plans and 
fiduciaries that exceeds the cost of the exemption.

Background

    Title I of ERISA establishes certain standards of conduct for 
fiduciaries of employee benefit plans covered by ERISA, including 
provisions prohibiting fiduciaries from causing a plan to engage in 
certain classes of transactions with persons defined as parties in 
interest. In addition, prohibited transactions that involve plans 
described in section 4975(e)(1) of the Code are generally subject to 
taxation under section 4975 of the Code.
    Section 409 of ERISA provides that a fiduciary who breaches any of 
the fiduciary responsibility provisions of Part 4 of Title I of ERISA 
shall be personally liable to the plan for any losses. Section 
502(a)(2) and (a)(5) of ERISA authorizes the Secretary of Labor (the 
Secretary) to bring civil actions to enforce the provisions of Title I 
of ERISA. Section 502(l) of ERISA requires the assessment of a civil 
penalty in an amount equal to 20% of the amount recovered under any 
settlement agreement with the Secretary or ordered by a court in an 
action initiated by the Secretary with respect to any breach of 
fiduciary responsibility under (or other violation of) Part 4 by a 
fiduciary.
    Based on its experience with the Pension Payback Program (61 FR 
9203, March 7, 1996) (Pension Payback Program) and continued interest 
in such programs, PWBA decided to establish the VFC Program. Under the 
VFC Program, persons who are potentially liable for a breach can avoid 
the possibility of civil investigation and/or civil actions initiated 
by the Department for that breach and the imposition of civil penalties 
under section 502(l) of ERISA, if they satisfy the conditions for 
correcting the breach, as described in the VFC Program. The Department 
believes that the VFC Program will encourage the full correction of 
certain breaches of fiduciary responsibility and the restoration to 
participants and beneficiaries of losses resulting from those breaches. 
In connection with the publication of the VFC Program, the Department 
sought comments from the public on all aspects of the Program. The VFC 
Program, as modified in response to the comments received, is being 
published simultaneously in this issue of the Federal Register.
    A number of those who commented on the VFC Program requested that 
the Department amend the VFC Program to provide relief from the excise 
taxes imposed under section 4975 of the Code for prohibited 
transactions. The commenters noted that the Department granted similar 
relief from the taxes imposed by section 4975 of the Code as part of 
the Pension Payback Program. According to the commenters, the absence 
of relief from the excise taxes, as well as the possibility of referral 
by the Secretary to the Internal Revenue Service as mandated by section 
3003 of ERISA, create a significant disincentive for Plan Officials to 
participate in the VFC Program.
    Upon consideration of the comments received in connection with the 
VFC Program, the Department has determined that it would be appropriate 
to propose limited exemptive relief in this area without impairing the 
interests of plan participants and beneficiaries. Accordingly, the 
class exemption, as proposed, would provide relief from the excise 
taxes imposed by section 4975 of the Code for certain eligible 
transactions identified in the VFC Program. The Internal Revenue 
Service has advised the Department that it will not seek to

[[Page 15087]]

impose the sanctions of section 4975(a) and (b) of the Internal Revenue 
Code with respect to any prohibited transaction that is covered by the 
proposed class exemption, notwithstanding any subsequent changes to the 
proposed class exemption when it is finalized, provided that all of the 
requirements specified in the proposed class exemption have been met.

Description of the Proposed Exemption

1. Scope
    The proposed exemption would provide relief from the sanctions 
imposed under section 4975(a) and (b) of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, for certain eligible 
transactions identified in the VFC Program. The proposed exemption does 
not provide relief for any transactions identified in the VFC Program 
that are not specifically described as eligible transactions under 
Section I of the proposal. The Department believes that it is 
appropriate to limit relief to those transactions for which the 
requisite findings under section 4975(c)(2) of the Code can be made. 
The Department is proposing prohibited transaction relief from the 
excise taxes under section 4975 of the Code in order to encourage plan 
fiduciaries to make full correction of certain eligible transactions 
which are violations of the prohibited transaction provisions of the 
Code.
    The four eligible transactions described in the proposed exemption 
are as follows:
    (A) The failure to transmit participant contributions to a pension 
plan within the time frames described in the Department's regulations 
at 29 CFR section 2510.3-102.
    (B) The making of a loan by a plan at a fair market interest rate 
to a party in interest with respect to the plan.
    (C) The purchase or sale of an asset (including real property) 
between a plan and a party in interest at fair market value.
    (D) The sale of real property to a plan by the employer and the 
leaseback of such property to the employer, at fair market value and 
fair market rental value, respectively.
    The eligible transactions may be illustrated by the following 
examples:

    Example (1): Corporation A sponsors a pension plan for its 
employees. Corporation A borrowed $100,000 from the plan. The loan 
was made at an interest rate no less than that available for a loan 
with similar terms (for example, the amount of the loan, amount and 
type of security, repayment schedule, and duration of loan) 
obtainable in an arm's-length transaction between unrelated parties.
    Example (2): Corporation B sponsors a pension plan for its 
employees. The plan sold a parcel of real property to Corporation B. 
The price Corporation B paid to the plan was the fair market value 
of the property, as determined by a qualified independent appraiser 
as of the date of the transaction and reflected in a qualified 
appraisal report. (If there is a generally recognized market for the 
property, such as the New York Stock Exchange, the fair market value 
of the property is the value objectively determined by reference to 
the price on such market on the date of the transaction, and a 
determination by a qualified independent appraiser is not required.)
    Example (3): Corporation C sponsors a pension plan for its 
employees. Corporation C sold a parcel of real property to the plan 
which was simultaneously leased back to Corporation C. The price 
paid by the plan for the property was its fair market value, and the 
rent paid by Corporation C to the plan is the fair market rental 
value, as determined by a qualified independent appraiser and 
reflected in a qualified appraisal report. The terms of the lease 
(for example, rent, duration and allocation of expenses) are not 
less favorable to the plan than those obtained in an arm's-length 
transaction between unrelated parties.
2. Proposed General Conditions
    Section II of the proposal contains general conditions, as 
discussed below, which the Department views as necessary to ensure that 
any transaction covered by the proposed exemption would be in the 
interests of plan participants and beneficiaries, and to support a 
finding that the proposed exemption meets the statutory requirements of 
section 4975(c)(2) of the Code.
    With respect to a transaction involving delinquent transmittal of 
participant contributions to a pension plan, the proposal requires that 
the contributions be transmitted to the pension plan not more than 180 
calendar days from the date the amounts were received by the employer 
(in the case of amounts that a participant or beneficiary pays to an 
employer) or the date the amount otherwise would have been payable to 
the participant in cash (in the case of amounts withheld by an employer 
from a participant's wages).
    Second, the proposal requires that, with respect to the 
transactions described in Section I.B., I.C. and I.D., the amount of 
plan assets involved in the transaction did not exceed 10 percent of 
the fair market value of all the assets of the plan at the time of the 
transaction. For purposes of this requirement, the 10 percent 
limitation would apply after aggregating the value of a series of 
related transactions.
    Third, under the proposed exemption, the fair market value of any 
plan asset involved in a transaction described in Sections I.C. or I.D. 
must have been determined in accordance with section 5 of the VFC 
Program. Section 5 of the VFC Program requires that the valuation must 
meet the following conditions: (1) If there is a generally recognized 
market for the property (e.g., the New York Stock Exchange), the fair 
market value of the asset is the average value of the asset on such 
market on the applicable date, unless the plan document specifies 
another objectively determined value (e.g., the closing price); and (2) 
if there is no generally recognized market for the asset, the fair 
market value of that asset must be determined in accordance with 
generally accepted appraisal standards by a qualified independent 
appraiser and reflected in a written appraisal report signed by the 
appraiser. For purposes of these requirements under the VFC Program, an 
appraiser is considered qualified if the appraiser has met the 
education, experience and licensing requirements that are generally 
recognized for appraisal of the type of asset being appraised. An 
appraiser is ``independent'' if the appraiser is not one of the 
following, does not own or control any of the following, and is not 
owned or controlled by, or affiliated with, any of the following: (i) 
The prior owner of the asset, if the asset was purchased by the plan; 
(ii) the purchaser of the asset, if the asset was or is now being sold 
by the plan; (iii) any other owner of the asset, if the plan is not the 
sole owner; (iv) a fiduciary of the plan; (v) a party in interest with 
respect to the plan (except to the extent the appraiser becomes a party 
in interest when retained to perform this appraisal for the plan); or 
(vi) the VFC Program applicant.
    Fourth, under the proposed exemption, the terms of a transaction 
described in Sections I.B., I.C., or I.D., must have been at least as 
favorable to the plan as the terms generally available in arm's-length 
transactions between unrelated parties.
    Fifth, with respect to all of the eligible transactions, the 
transaction may not have been part of an agreement, arrangement or 
understanding designed to benefit a party in interest. The Department 
notes that the intent of this condition is not to deny a direct benefit 
to the party in interest but, rather, to exclude relief for 
transactions that are part of a broader overall agreement, arrangement 
or understanding designed to benefit parties in interest.
    Sixth, with respect to all of the eligible transactions, the 
applicant may not have taken advantage of the relief provided by the 
VFC Program and the proposed exemption for a similar type of 
transaction identified in the

[[Page 15088]]

application during the three-year period prior to the submission of the 
application.
3. Compliance With VFC Program
    In addition to compliance with the general conditions set forth 
above, Section III of the proposed exemption requires that the 
applicant meet the requirements set forth in the VFC Program that are 
applicable to the particular transaction. The proposal also requires 
that the applicant must have received a no action letter issued by PWBA 
with respect to such transaction, which must be an eligible transaction 
otherwise described in Section I of the proposed exemption. However, 
the fact that an applicant receives a no action letter issued by PWBA 
should not be viewed as a determination by PWBA that the applicant has 
satisfied all of the conditions of the proposed exemption. Each 
applicant must determine whether the pertinent conditions of the 
proposed exemption have been met.
4. Notice
    Although the Department determined to eliminate the required notice 
from the final VFC Program (published simultaneously in this issue of 
the Federal Register), it believes that such a requirement is 
appropriate for those wishing to take advantage of the exemption in 
light of the additional relief provided. Consistent with the notice 
requirement of section 4975(c)(2) of the Code, the purpose of the 
notice requirement of this exemption is to afford interested persons 
the opportunity to provide the Department with relevant information 
concerning the transaction.
    Notice under the proposed exemption must be given to interested 
persons within 60 calendar days following the date of the submission of 
an application under the VFC Program to the Department. Plan assets may 
not be used to pay for the notice. The exemption does not specify the 
format or specific content of the notice. However, the notice must 
include an objective description of the transaction and the steps taken 
to correct it, written in a manner reasonably calculated to be 
understood by the average Plan participant or beneficiary. The notice 
also must provide for a period of 30 calendar days, beginning on the 
date the notice is distributed, for interested persons to provide 
comments to the appropriate Regional Office of the United States 
Department of Labor, Pension and Welfare Benefits Administration. The 
notice must include the address and telephone number of such Regional 
Office.
    A copy of the notice to interested persons, along with an 
indication of the date on which it was distributed, must be provided to 
the appropriate Regional Office within the same 60-day period following 
the date of the submission of the application. Accordingly, applicants 
under the VFC Program who intend to take advantage of the relief 
provided under this exemption would indicate on the checklist submitted 
as part of the VFC Program application that they will, within 60 
calendar days following the date of the submission of the application, 
provide the Department's Regional Office with a copy of the notice to 
interested persons.
    Notice may be given in any manner that is reasonably calculated, 
taking into consideration the particular circumstances of the plan, to 
result in the receipt of such notice by interested persons, including 
but not limited to posting, regular mail, or electronic mail, or any 
combination thereof.

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 4975(c)(2) of the Code does not relieve a fiduciary or 
other party in interest or disqualified person with respect to a plan 
from certain other provisions of ERISA and the Code, including any 
prohibited transaction provisions to which the exemption does not 
apply, the requirement that all assets of an employee benefit plan be 
held in trust by one or more trustees, and the general fiduciary 
responsibility provisions of ERISA which require, among other things, 
that a fiduciary discharge his or her duties respecting the plan solely 
in the interests of the participants and beneficiaries of the plan and 
in a prudent fashion; 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) The proposed exemption, if granted, will not extend to 
transactions prohibited under section 4975(c)(1)(F) of the Code.
    (3) Before this exemption may be granted under section 4975(c)(2) 
of the Code, the Department must find that the exemption is 
administratively feasible, in the interests of plans and their 
participants and beneficiaries, and protective of the rights of 
participants and beneficiaries of such plans.
    (4) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of other provisions of ERISA and 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.
    (5) If granted, the proposed class exemption will be applicable to 
a transaction only if the conditions specified in the class exemption 
are satisfied.

Written Comments and Hearing Requests

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

Proposed Exemption

    The Department has under consideration the grant of the following 
class exemption, under the authority of 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).

Section I: Eligible Transactions

    The sanctions resulting from the application of section 4975(a) and 
(b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the following eligible transactions described 
in section 7 of the Voluntary Fiduciary Correction (VFC) Program, 
published simultaneously in this issue of the Federal Register, 
provided that the applicable conditions set forth in Sections II, III 
and IV are met:
    A. Failure to transmit participant contributions to a pension plan 
within the time frames described in the Department's regulation at 29 
CFR section 2510.3-102. (See VFC Program, section 7.A.1.).
    B. Loan at a fair market interest rate to a party in interest with 
respect to a plan. (See VFC Program, section 7.B.1.).
    C. Purchase or sale of an asset (including real property) between a 
plan and a party in interest at fair market value. (See VFC Program, 
sections 7.C.1. and 7.C.2.).
    D. Sale of real property to a plan by the employer and the 
leaseback of the property to the employer, at fair market value and 
fair market rental value, respectively. (See VFC Program, section 
7.C.3.).

[[Page 15089]]

Section II: Conditions

    A. With respect to a transaction involving participant 
contributions to pension plans described in Section I.A., the 
contributions were transmitted to the pension plan not more than 180 
calendar days from the date the amounts were received by the employer 
(in the case of amounts that a participant or beneficiary pays to an 
employer) or the date the amounts otherwise would have been payable to 
the participant in cash (in the case of amounts withheld by an employer 
from a participant's wages).
    B. With respect to the transactions described in Sections I.B., 
I.C., or I.D., the plan assets involved in the transaction, or series 
of related transactions, did not, in the aggregate, exceed 10 percent 
of the fair market value of all the assets of the plan at the time of 
the transaction.
    C. The fair market value of any plan asset involved in a 
transaction described in Sections I.C. or I.D. was determined in 
accordance with section 5 of the VFC Program.
    D. The terms of a transaction described in Sections I.B., I.C., or 
I.D. were at least as favorable to the plan as the terms generally 
available in arm's-length transactions between unrelated parties.
    E. With respect to any transaction described in Section I, the 
transaction was not part of an agreement, arrangement or understanding 
designed to benefit a party in interest.
    F. With respect to any transaction described in Section I, the 
applicant has not taken advantage of the relief provided by the VFC 
Program and this exemption for a similar type of transaction(s) 
identified in the current application during the period which is 3 
years prior to submission of the current application.

Section III: Compliance with VFC Program

    A. The applicant has met all of the applicable requirements of the 
VFC Program.
    B. PWBA has issued a no action letter to the applicant pursuant to 
the VFC Program with respect to a transaction described in Section I.

Section IV: Notice

    A. Written notice of the transaction(s) for which the applicant is 
seeking relief pursuant to the VFC Program and this exemption, and the 
method of correcting the transaction, was provided to interested 
persons within 60 calendar days following the date of the submission of 
an application under the VFC Program. A copy of the notice was provided 
to the appropriate Regional Office of the United States Department of 
Labor, Pension and Welfare Benefits Administration within the same 60-
day period, and the applicant indicated the date upon which notice was 
distributed to interested persons. Plan assets were not used to pay for 
the notice. The notice included an objective description of the 
transaction and the steps taken to correct it, written in a manner 
reasonably calculated to be understood by the average Plan participant 
or beneficiary. The notice provided for a period of 30 calendar days, 
beginning on the date the notice was distributed, for interested 
persons to provide comments to the appropriate Regional Office. The 
notice included the address and telephone number of such Regional 
Office.
    B. Notice was given in a manner that was reasonably calculated, 
taking into consideration the particular circumstances of the plan, to 
result in the receipt of such notice by interested persons, including 
but not limited to posting, regular mail, or electronic mail, or any 
combination thereof. The notice informed interested persons of the 
applicant's participation in the VFC Program and intention of availing 
itself of relief under the exemption.

    Signed at Washington, DC, this 25th day of March, 2002.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S. 
Department of Labor.
[FR Doc. 02-7515 Filed 3-27-02; 8:45 am]
BILLING CODE 4510-29-P