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Prohibited Transaction Exemption 2002-26; Grant of Individual Exemptions; Holt Fleck & Free P.A. Profit Sharing Plan (the Plan), et al. [05/22/2002]
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Volume 67, Number 99, Page 36030-36034
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Exemption Application No. D-11000]
Prohibited Transaction Exemption 2002-26; Grant of Individual
Exemptions; Holt Fleck & Free P.A. Profit Sharing Plan (the Plan), et
al.
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.
[[Page 36031]]
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.
Holt, Fleck & Free P.A. Profit Sharing Plan (the Plan) Located in
Noblesville, Indiana
[Prohibited Transaction Exemption No. 2002-26; Exemption Application
No. D-11000]
Exemption
The restrictions of sections 406(a) and 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the sale (the Sale) by the Plan to a Plan fiduciary
of two parcels of improved real property (the Parcels). This exemption
is conditioned upon the adherence to the material facts and
representations described herein and upon the satisfaction of the
following requirements:
(a) All terms and conditions of the Sale are at least as favorable
to the Plan as those that the Plan could obtain in an arm's-length
transaction with an unrelated party;
(b) The Sales price is the greater of $165,000 or the fair market
value of the Parcels as of the date of the Sale;
(c) The fair market value of the Parcels has been determined by an
independent, qualified appraiser;
(d) The Sale is a one-time transaction for cash; and
(e) The Plan does not pay any commissions, costs or other expenses
in connection with the Sale.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the Notice of Proposed Exemption published on March 18, 2002 at 67 FR
12064.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 693-8540 (this is not a toll-free number).
Prudential Insurance Company of America and Its Affiliates
(collectively, Prudential) Located in Newark, NJ
[Prohibited Transaction Exemption 2002-27; Exemption Application No. D-
11051]
Exemption
Section I. Exemption for the Acquisition, Holding and Disposition of
Prudential Stock
The restrictions of sections 406(a)(1)(D), 406(b)(1) and section
406(b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(D) and (E)
of the Code,\1\ shall not apply, effective December 13, 2001, to the
acquisition, holding and disposition of common stock issued by
Prudential Financial, Inc. (the Prudential Financial Stock) and/or
common stock issued by a Prudential affiliate (the Prudential Affiliate
Stock; together, the Prudential Stock), by Index and Model-Driven Funds
that are managed by Prudential, in which client plans of Prudential
invest, provided that the following conditions and the General
Conditions of Section II are met:
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\1\ For purposes of this exemption, references to provisions of
the Act refer also to corresponding provisions of the Code.
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(a) The acquisition or disposition of Prudential Stock is for the
sole purpose of maintaining strict quantitative conformity with the
relevant index upon which the Index or Model-Driven Fund is based, and
does not involve any agreement, arrangement or understanding regarding
the design or operation of the Fund acquiring Prudential Stock which is
intended to benefit Prudential or any party in which Prudential may
have an interest.
(b) Whenever Prudential Stock is initially added to an index on
which an Index or Model-Driven Fund is based, or initially added to the
portfolio of an Index or Model-Driven Fund, all acquisitions of
Prudential Stock necessary to bring the Fund's holdings of such stock
either to its capitalization-weighted or other specified composition in
the relevant index, as determined by the independent organization
maintaining such index, or to its correct weighting as determined by
the model which has been used to transform the index, occur in the
following manner:
(1) Purchases are from, or through, only one broker or dealer on a
single trading day;
(2) Based on the best available information, purchases are not the
opening transaction for the trading day;
(3) Purchases are not effected in the last half hour before the
scheduled close of the trading day;
(4) Purchases are at a price that is not higher than the lowest
current independent offer quotation, determined on the basis of
reasonable inquiry from non-affiliated brokers;
(5) Aggregate daily purchases do not exceed 15 percent of the
average daily trading volume for the security, as determined by the
greater of either (i) the trading volume for the security occurring on
the applicable exchange and automated trading system on the date of the
transaction, or (ii) an aggregate average daily trading volume for the
security occurring on the applicable exchange and automated trading
system for the previous 5 business days, both based on the best
information reasonably available at the time of the transaction;
(6) All purchases and sales of Prudential Stock occur either (i) on
a recognized U.S. securities exchange (as defined in Section III(k)
below), (ii) through an automated trading system (as defined in Section
III(j) below) operated by a broker-dealer independent of Prudential
that is registered under the Securities Exchange Act of 1934 (the 1934
Act), and thereby subject to regulation by the Securities and Exchange
Commission (the SEC), which provides a mechanism for customer orders to
be matched on an anonymous basis without the participation of a broker-
dealer, or (iii) through an automated trading system (as defined in
Section III(j) below) that is operated by a recognized U.S. securities
exchange (as defined in Section III(k) below), pursuant to the
applicable securities laws, and provides a mechanism for customer
orders to be matched on an anonymous basis without the participation of
a broker-dealer; and
(7) If the necessary number of shares of Prudential Stock cannot be
acquired within 10 business days from the date of the event which
causes the particular Fund to require Prudential Stock, Prudential
appoints a fiduciary which is independent of Prudential to design
acquisition procedures and monitor compliance with such procedures.
(c) Subsequent to acquisitions necessary to bring a Fund's holdings
of Prudential Stock to its specified weighting in the index or model
pursuant to the restrictions described in Section I(b) above, all
aggregate daily purchases of Prudential Stock by the Funds do not
exceed on any particular day the greater of:
(1) 15 percent of the average daily trading volume for Prudential
Stock occurring on the applicable exchange and automated trading system
(as defined below) for the previous 5 business days, or
[[Page 36032]]
(2) 15 percent of the trading volume for Prudential Stock occurring
on the applicable exchange and automated trading system (as defined
below) on the date of the transaction, as determined by the best
available information for the trades that occurred on such date.
(d) All transactions in Prudential Stock not otherwise described
above in Section I(b) are either-(i) entered into on a principal basis
in a direct, arm's length transaction with a broker-dealer, in the
ordinary course of its business, where such broker-dealer is
independent of Prudential and is registered under the 1934 Act, and
thereby subject to regulation by the SEC, (ii) effected on an automated
trading system (as defined in Section III(j) below) operated by a
broker-dealer independent of Prudential that is subject to regulation
by either the SEC or another applicable regulatory authority, or an
automated trading system operated by a recognized U.S. securities
exchange (as defined in Section III(k) below) which, in either case,
provides a mechanism for customer orders to be matched on an anonymous
basis without the participation of a broker-dealer, or (iii) effected
through a recognized U.S. securities exchange (as defined in Section
III(k) below), so long as the broker is acting on an agency basis.
(e) No transactions by a Fund involve purchases from, or sales to,
Prudential (including officers, directors, or employees thereof), or
any party in interest that is a fiduciary with discretion to invest
plan assets into the Fund (unless the transaction by the Fund with such
party in interest would otherwise be subject to an exemption).
(f) No more than 5 percent of the total amount of Prudential Stock,
that is issued and outstanding at any time, is held in the aggregate by
Index and Model-Driven Funds managed by Prudential.
(g) Prudential Stock constitutes no more than 5 percent of any
independent third party index on which the investments of an Index or
Model-Driven Fund are based.
(h) A fiduciary of a plan which is independent of Prudential
authorizes the investment of such plan's assets in an Index or Model-
Driven Fund which purchases and/or holds Prudential Stock, pursuant to
the procedures described herein.
(i) A fiduciary independent of the Prudential directs the voting of
Prudential Stock held by an Index or Model-Driven Fund on any matter in
which shareholders of Prudential are required or permitted to vote.
Section II. General Conditions
(a) Prudential maintains or causes to be maintained for a period of
six years from the date of the transaction the records necessary to
enable the persons described in paragraph (b) of this Section II to
determine whether the conditions of this exemption have been met,
except that (1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Prudential, the
records are lost or destroyed prior to the end of the six year period,
and (2) no party in interest other than Prudential 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 the
records are not maintained or are not available for examination as
required by paragraph (b) below.
(b)(1) Except as provided in paragraph (b)(2) of this Section II
and notwithstanding any provisions of section 504(a)(2) and (b) of the
Act, the records referred to in paragraph (a) of this Section II are
unconditionally available at their customary location for examination
during normal business hours by -
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the SEC,
(B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of
the plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer to any plan participating in an Index
or Model-Driven Fund or any duly authorized employee or representative
of such employer, and
(D) Any participant or beneficiary of any plan participating in an
Index or Model-Driven Fund, or a representative of such participant or
beneficiary.
(2) None of the persons described in subparagraphs (B) through (D)
of this Section II(b)(1) shall be authorized to examine trade secrets
of Prudential or commercial or financial information which is
considered confidential.
Section III. Definitions
(a) The term Index Fund means any investment
fund, account or portfolio sponsored, maintained, trusteed, or managed
by Prudential, in which one or more investors invest, and-
(1) Which is designed to track the rate of return, risk profile and
other characteristics of an independently maintained securities Index,
as described in Section III(c) below, by either (i) replicating the
same combination of securities which compose such Index or (ii)
sampling the securities which compose such Index based on objective
criteria and data;
(2) For which Prudential does not use its discretion, or data
within its control, to affect the identity or amount of securities to
be purchased or sold;
(3) That contains plan assets subject to the
Act, pursuant to the Department's regulations (see 29 CFR 2510.3-101,
Definition of plan assets-plan investments); and,
(4) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Fund which is intended to
benefit Prudential or any party in which Prudential may have an
interest.
(b) The term Model-Driven Fund means any
investment fund, account or portfolio sponsored, maintained, trusteed,
or managed by Prudential, in which one or more investors invest, and-
(1) Which is composed of securities the identity of which and the
amount of which are selected by a computer model that is based on
prescribed objective criteria using independent third party data, not
within the control of Prudential, to transform an independently
maintained Index, as described in Section III(c) below;
(2) Which contains plan assets subject to the
Act, pursuant to the Department's regulations (see 29 CFR 2510.3-101,
Definition of plan assets-plan investments); and
(3) That involves no agreement, arrangement, or understanding
regarding the design or operation of the Fund or the utilization of any
specific objective criteria which is intended to benefit Prudential or
any party in which Prudential may have an interest.
(c) The term Index means a securities index
that represents the investment performance of a specific segment of the
public market for equity or debt securities in the United States, but
only if-
(1) The organization creating and maintaining the index is-
(A) Engaged in the business of providing financial information,
evaluation, advice or securities brokerage services to institutional
clients,
(B) A publisher of financial news or information, or
(C) A public stock exchange or association of securities dealers;
and,
(2) The index is created and maintained by an organization
independent of Prudential; and,
(3) The index is a generally-accepted standardized index of
securities which
[[Page 36033]]
is not specifically tailored for the use of Prudential.
(d) The term opening date means the date on
which investments in or withdrawals from an Index or Model-Driven Fund
may be made.
(e) The term Buy-up means an acquisition of
Prudential Stock by an Index or Model-Driven Fund in connection with
the initial addition of such stock to an independently maintained index
upon which the Fund is based or the initial investment of a Fund in
such stock.
(f) The term Prudential refers to Prudential
Insurance Company of America, its indirect parent and holding company,
Prudential Financial, and any current or future affiliates, as defined
below in paragraph (h).
(g) The term Prudential Financial refers to
Prudential Financial, Inc., the indirect parent and holding company of
Prudential Insurance Company of America.
(h) An affiliate of Prudential includes:
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the person;
(2) Any officer, director, employee or relative of such person, or
partner of any such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner or employee.
(i) The term control means the power to
exercise a controlling influence over the management or policies of a
person other than an individual.
(j) The term automated trading system means
an electronic trading system that functions in a manner intended to
simulate a securities exchange by electronically matching orders on an
agency basis from multiple buyers and sellers, such as an
alternative trading system within the meaning of
the SEC's Reg. ATS [17 CFR Part 242.300], as such definition may be
amended from time to time, or an automated quotation
system as described in Section 3(a)(51)(A)(ii) of the 1934
Act [15 USC 8c(a)(51)(A) (ii)].
(k) The term recognized U.S. securities
exchange means a U.S. securities exchange that is registered
as a national securities exchange under Section 6
of the 1934 Act (15 USC 78f), as such definition may be amended from
time to time, which performs with respect to securities the functions
commonly performed by a stock exchange within the meaning of
definitions under the applicable securities laws (e.g., 17 CFR Part
240.3b-16).
Effective Date: This exemption is effective as of December 13, 2001.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on January 18, 2002 at 67 FR
2692.
Written Comments
The Department received two written comments with respect to the
proposed exemption and no requests for a public hearing. The comments,
which were submitted by representatives of two Prudential client plans,
expressed concern that allowing Index and Model-Driven Funds managed by
Prudential to invest in Prudential Stock would create a conflict of
interest for Prudential. One of the commenters also referred to the
Enron situation and the general concerns of the
public with respect to conflicts of interest in large company 401(k)
plan investments.
In response to these comments, Prudential notes that it applied to
the Department for exemptive relief because of the possibility of
conflicts of interest where Prudential manages Index and Model-Driven
Funds that invest in Prudential Stock. However, Prudential believes
that the conditions imposed by the proposed exemption effectively
protect investing plans from these conflicts. Prudential points out
that at their core, the conditions of the proposed exemption are
designed to eliminate any exercise of discretion by Prudential in
determining when and how Prudential Stock is bought or sold in
connection with Index or Model-Driven Funds. By operating in accordance
with these conditions, Prudential states that it has none of the
discretion that would permit it to engage in conflicts of interest.
Prudential also explains that in the first condition of the proposal,
the sole purpose for the acquisition of Prudential Stock is to maintain
strict quantitative conformity with the relevant index upon
which the Index or Model-Driven Fund is based, and does not involve any
agreement, arrangement or understanding regarding the design or
operation of the Fund acquiring Prudential Stock which is intended to
benefit Prudential or any party in which Prudential has an
interest. Further, Prudential states that the proposed
exemption includes numerous other conditions that limit any potential
for conflicts of interest.
In addition, Prudential notes that the Department has issued
several exemptions to financial institutions permitting the purchase of
their own stock by index and model-driven funds they manage, subject to
nearly identical conditions. Therefore, Prudential argues that it would
be unfair if the Department were not to grant it the same exemptive
relief its competitors have received.
Finally, Prudential notes that the proposed exemption does not
raise Enron-type concerns because the proposal does not cover
investments by Prudential's in-house plans in Prudential Stock. Also,
Prudential explains that the proposal does not present the investment
diversification issue that was raised in connection with Enron's 40l(k)
plan since Prudential Stock will always constitute a small portion of
the stock held by the Index and Model-Driven Funds and Prudential Stock
will always comprise a small fraction of the indexes these Funds track.
Accordingly, after giving full consideration to the entire record,
including the written comments, the Department has decided to grant the
exemption subject to the clarifications described above. 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-11051) 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 Labor,
200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 693-8556. (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
[[Page 36034]]
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 17th day of May, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 02-12829 Filed 5-21-02; 8:45 am]
BILLING CODE 4510-29-P
