EBSA (Formerly PWBA) Federal Register Notice
Grant of Individual Exemptions; Deutsche Bank AG [06/20/2002]
[PDF Version]
Volume 67, Number 119, Page 42072-42081
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2002-31; (Exemption Application No.
D-11002) et al.]
Grant of Individual Exemptions; Deutsche Bank AG
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 he prohibited transaction
restriction 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) the Act and/or section 4975(c)(2)
of the Code an the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, 32847, August 10, 1990) and based upon he 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.
Deutsche Bank AG, Located in Frankfurt/Main, Germany
[Prohibited Transaction No. 2002-31; Exemption Application No: D-11002]
Exemption
I. General Exemption
Effective for the period from June 12, 2001, through July 27, 2009,
the restrictions of section 406(a)(1)(A) through (D) of the Act and the
taxes imposed by section 4975(a) and (b) of the Code by reason of
section 4975(c)(1)(A) through (D) of the Code, shall not apply to a
transaction between a party in interest with respect to an employee
benefit plan and an investment fund (as defined in section V(b)), in
which the plan has an interest, and which is managed by Deutsche Bank
AG (Deutsche Bank or the Applicant) (as defined in section V(a)), if
the following conditions are satisfied:
(a) At the time of the transaction (as defined in section V(i)),
the part in interest, or its affiliate (as defined in section V(c)),
does not have, and during the immediately preceding one (1) year has
not exercised, the authority to--
(1) Appoint or terminate Deutsche Bank as a manager of any of the
plan's assets, or
(2) Negotiate the terms fo the management agreement with Deutsche
Bank (including renewals or modifications thereof) on behalf of such
plan;
(b) The transaction is not described in--
Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) \1\
(relating to securities lending arrangements);
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\1\ 46 FR 7527, January 23, 1981.
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(2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1) \2\
(relating to acquisitions by plans of interests in mortgage pools), or
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\2\ 48 FR 895, January 7, 1983.
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(3) Prohibited Transaciton Class Exemption 82-87 (PTCE 82-87) \3\
[[Page 42073]]
(relating to certain mortgage financing arrangements);
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\3\ 47 FR 21331, May 18, 1982.
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(c) The terms of the transaction are negotiated on behalf of the
investment fund by, or under the authority and general direction of
Deutsche Bank, and either Deutsche Bank, or (so long as Deutsche Bank
retains full fiduciary responsibility with respect to the transaction)
a property manager acting in accordance with written guidelines
established and administered by Deutsche Bank, makes the decision on
behalf of the investment fund to enter into the transaction, provided
that the transaction is not part of an agreement, arrangement, or
understanding designed to benefit a party in interest;
(d) The party in interest dealing with the investment fund is
neither Deutsche Bank nor a person related to Deutsche Bank (within the
meaning of section V(h));
(e) The transaction is not entered into with a party in interest
with respect to any plan whose assets managed by Deutsche Bank, when
combined with the assets of other plans established or maintained by
the same employer (or affiliate thereof described in section V(c)(1) of
this exemption) or by the same employee organization, and managed by
Deutsche Bank, represent more than 20 percent (20%) of the total client
assets managed by Deutsche Bank at the time of the transaction;
(f) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification thereof that requires the
consent of Deutsche Bank, the terms of the transaction are at least as
favorable to the investment fund as the terms generally available in
arm's length transactions between unrelated parties;
(g)(1) Neither Deutsche Bank nor any affiliate thereof (as defined
in section V(d)), nor any owner, direct or indirect, of a 5 percent
(5%) or more interest in Deutsche Bank is a person who, within the ten
(10) years immediately preceding the transaction, has been either
convicted or released from imprisonment, whichever is later, as a
result of any felony involving abuse or misuse of such person's
employee benefit plan position or employment, or position or employment
with a labor organization; any felony arising out of the conduct of the
business of a broker, dealer, investment adviser, bank, insurance
company, or fiduciary; income tax evasion; any felony involving the
larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent conversion, or misappropriation
of funds or securities; conspiracy or attempt to commit any such crimes
or a crime in which any of the foregoing crimes is an element; or any
other crime described in section 411 of the Act.
(2) The relief provided by this exemption is available to Deutsche
Bank (ad defined in section V(a)), notwithstanding the guilty plea on
March 11, 1999, of Deutsche Bank's affiliate, Bankers Trust Company
(Bankers Trust), to three counts of violations of 18 U.S.C. Sec. 1005,
provided that neither Deutsche Bank nor any affiliate, nor any owner,
direct or indirect of a 5 percent (5%) or more interest in Deutsche
Bank is convicted of any of the crimes (described in section I(g)(1)),
and provided that Bankers Trust is not subsequently convicted of any
crimes (described in section I(g)(1)).
(3) For purposes of this section I(g), a person shall be deemed to
have been ``convicted'' from the date of the judgment of the trial
court, regardless of whether that judgment remains under appeal.
(h) Prior to entering into a transaction covered by this exemption
Deutsche Bank must agree in writing with a plan:
(1) That the transaction is governed by the laws of the United
States and that Deutsche Bank is a fiduciary of the plan pursuant to
the provisions of the Act;
(2) To submit to the jurisdiction of the United States district
courts;
(3) To appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(4) To consent to service of process on the Process Agent; and
(5) To indemnify and hold harmless each plan affected by this
exemption in the United States against any harm, damage, or injury
(including interest and attorney's fees) arising from any fiduciary
breach or other wrongdoing of Deutsche Bank in its capacity as an asset
manager for such plan.
(i) Upon request, Deutsche Bank provides to each plan affected by
this exemption copies of the Notice of Proposed Exemption (the Notice)
and the final exemption;
(j) Deutsche Bank provides each plan affected by this exemption
with a written consent to service of process in the United States and
to the jurisdiction of the courts of the United States for any civil
action or proceeding brought against Deutsche Bank with respect to the
subject transactions, which consent provides that process may be served
on Deutsche Bank through service on Deutsche Bank's New York branch (or
any other branch or affiliate of Deutsche Bank that is domiciled in the
United States);
(k) Deutsche Bank and/or its affiliates (as defined in section
V(c)(1)), maintains or causes to be maintained within the United States
for a period of six (6) years from the date of each transaction covered
by this exemption, in a manner that is convenient and accessible for
audit and examination, such records as are necessary to enable persons
(as described in section I(l)) to determine whether the conditions of
the 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 Deutsche Bank
and/or its affiliates (as defined in section V(c)(1)), records are lost
or destroyed prior to the end of the six (6) year period; and
(2) No party in interest other than Deutsche Bank and/or its
affiliates 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 section I(l)(1));
(l)(1) Except as provided in section I(l)(2) and notwithstanding
any provisions of subsections (a)(2) and (b) of section 504 of the Act,
the records referred to, above, in section I(k) are unconditionally
available at their customary location during normal business hours to:
(i) any duly authorized employee or representative of the Department,
the Internal Revenue Service or the Securities and Exchange Commission;
(ii) any fiduciary of a plan affected by this exemption or any duly
authorized representative of such fiduciary; (iii) any contributing
employer to any plan affected by this exemption or any duly authorized
employee representative of such employer; and (iv) any participant or
beneficiary of any plan affected by this exemption, or any duly
authorized representative of such participant or beneficiary;
(2) None of the persons described above in section I(l)(1)(ii)-(iv)
are authorized to examine the trade secrets of Deutsche Bank or
commercial or financial information which is privileged or
confidential;
(m) Upon request, Deutsche Bank discloses to the plan sponsor and/
or the named fiduciary of each plan affected by this exemption
information concerning the nature and extent of Deutsche Bank's
regulation by German governmental authorities.
II. Specific Exemptions for Employers
Effective for the period from June 12, 2001, through July 27, 2009,
the restrictions of sections 406(a), 406(b)(1)
[[Page 42074]]
and 407(a) of the Act and the taxes imposed by section 4975(a) and (b)
of the Code, by reason of Code section 4975(c)(1(A) through (E), shall
not apply to:
(a) The sale, leasing, or servicing of goods (as defined in section
V(j)), or to the furnishing of services, to an investment fund managed
by Deutsche Bank, by a party in interest with respect to a plan having
an interest in the investment fund, if--
(1) The party in interest is an employer any of whose employees are
covered by the plan or is a person who is a party in interest by virtue
of a relationship to such an employer described in section V(c).
(2) The transaction is necessary for the administration or
management of the investment fund,
(3) The transaction takes place in the ordinary course of a
business engaged in by the party in interest with the general public,
(4) Effective for taxable years of the party in interest furnishing
goods and services after the date this exemption is granted, the amount
attributable in any taxable year of the party in interest to
transaction engaged in with an investment fund pursuant to section
II(a) of this exemption does not exceed one percent (1%) of the gross
receipts derived from all sources for the prior taxable year of such
party in interest, and
(5) The requirements of sections I(c) through (n) are satisfied
with respect to the transaction;
(b) The leasing of office or commercial space by an investment fund
managed by Deutsche Bank to a party in interest with respect to a plan
having an interest in the investment fund, if--
(1) The party in interest is an employer any of whose employees are
covered by such plan or is a person who is a party in interest by
virtue of a relationship to such an employer described in section V(c).
(2) No commission or other fee is paid by the investment fund to
Deutsche Bank or to the employer (as defined in section V(c)), in
connection with the transaction,
(3) Any unit of space leased to the party in interest by the
investment fund is suitable (or adaptable without excessive cost) for
use by different tenants;
(4) The amount of space covered by the lease does not exceed
fifteen (15) percent of the rentable space of the office building,
integrated office park, or of the commercial center (if the lease does
not pertain to office space),
(5) In the case of a plan that is not an eligible individual
account plan (as defined in section 407(d)(3) of the Act), immediately
after the transaction is entered into, the aggregate fair market value
of employer real property and employer securities held by investment
funds of Deutsche Bank in which such plan has an interest does not
exceed 10 percent (10%) of the fair market value of the assets of such
plan held in those investment funds. In determining the aggregate fair
market value of employer real property and employee securities as
described herein, a plan shall be considered to own the same
proportionate undivided interest in each asset of the investment fund
or funds as its proportionate interest of the investment fund of funds
as its proportionate interest in the total assets of the investment
fund(s). For purposes of this requirement the term, ``employer real
property,'' means real property leased to, the term, ``employer
securities,'' means securities issued by, an employer any of whose
employees are covered by such plan or a party in interest of the plan
by reason of a relationship to the employer described in subparagraphs
(E) or (G) of section 3(14) of the Act, and
(6) The requirements of sections I(c) through (n) are satisfied
with respect to the transaction.
III. Specific Lease exemption for Deutsche Bank
Effective for the period from June 12, 2001, through July 27, 2009,
the restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1) and
(2) of the Act and the taxes imposed by Code section 4975(a) and (b),
by reason of Code section 4975(c)(1)(A) through (E), shall not apply to
the leasing of office or commercial space by an investment fund managed
by Deutsche Bank to Deutsche Bank, a person who is a party in interest
of a plan by virtue of a relationship to Deutsche Bank described in
subparagraphs (G), (H) or (I) of section 3(14) of the Act, or a person
not eligible for the General Exception of Part I of this exemption by
reason of section I(a), if--
(a) The amount of space covered by the lease does not exceed the
greater of 7500 square feet or one percent (1%) of the rentable space
of the office building, integrated office park or of the commercial
center in which the investment fund has the investment,
(b) The unit of space subject to the lease is suitable (or
adaptable without excessive cost) for use by different tenants,
(c) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification thereof that requires the
consent of Deutsche Bank, the terms of the transaction are not more
favorable to the lessee than the terms generally available in arm's
length transactions between unrelated parties, and
(d) No commission or other fee is paid by the investment fund to
Deutsche Bank, any person possessing the disqualifying powers described
in section I(a), or any affiliate of such persons (as defined in
section V(c)), in connection with transaction.
IV. Transactions Involving Places of Public Accommodation
Effective for the period from June 12, 2001, through July 27, 2009,
the restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1) and
(b)(2) of the Act and 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,
shall not apply to the furnishing of services and facilities (and goods
incidental thereto) by a place of public accommodation owned by an
investment fund managed by Deutsche Bank to a party in interest with
respect to a plan having an interest in the investment fund, if the
services and facilities (and incidental goods) are furnished on a
comparable basis to the general public.
V. Definitions
For purposes of this exemption:
(a) The term, ``Deutsche Bank'' means Deutsche Bank AG, provided
that Deutsche Bank AG: (i) has the power to manage, acquire or dispose
of assets of a plan affected by this exemption; (ii) has, as of the
last day of its most recent fiscal year, equity capital (as defined in
section V(k)) in excess of $10,000,000; (iii) has acknowledged in a
written management agreement that it is a fiduciary with respect to
each plan that has retained Deutsche Bank AG to manage the assets of
the plan; and (iv) is subject to regulation by the German federal
banking supervisory authority, known as the Bundesaufsichtsamt fuer das
Kreditwesen (the BAK).
(b) An ``investment fund'' includes individual trusts and common,
collective or group trusts maintained by a bank, and any other account
or fund to the extent that the disposition of its assets (whether or
not in the custody of Deutsche Bank) is subject to the discretionary
authority of Deutsche Bank.
(c) For purposes of section I(a) section I(k), and Part II, an
``affiliate'' of a person means--
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person,
[[Page 42075]]
(2) Any corporation, partnership, trust, or unincorporated
enterprise of which such person is an officer, director, 5 percent (5%)
or more partner, or employee (but only if the employer of such employee
is the plan sponsor), and
(3) Any director of the person or any employee of the person who is
a highly compensated employee, as defined in section 4975(e)(2)(H) of
the Code, or who has direct or indirect authority, responsibility, or
control regarding the custody, management, or disposition of plan
assets. A named fiduciary (within the meaning of section 402(a)(2) of
the Act) of a plan, and an employer any of whose employees are covered
by such plan will also be considered affiliates with respect to each
other for purposes of section I(a), if such employer or an affiliate of
such employer has the authority, alone or shared with others, to
appoint or terminate the named fiduciary or otherwise negotiate the
terms of the named fiduciary's employment agreement.
(d) For purposes of section I(g), an ``affiliate'' of a person
means--
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person,
(2) Any director of, relative of, or partner in, any such person,
(3) Any corporation, partnership, trust, or unincorporated
enterprise of which such person is an officer, director, or 5 percent
(5%) or more partner, or owner, and
(4) Any employee or officer of the person who--
(A) Is a highly compensated employee (as described in section
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more
of the yearly wages of such person), or
(B) Has direct or indirect authority, responsibility, or control
regarding the custody, management, or disposition of plan assets.
(3) The term, ``control,'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
(f) The term, ``party in interest,'' means a person described in
section 3(14) of the Act and includes a ``disqualified person,'' as
defined in section 4975(e)(2) of the Code.
(g) The term, ``relative,'' means a relative as that term is
defined in section 3(15) of the Act, or a brother, a sister, or a
spouse of a brother or sister.
(h) Deutsche Bank is ``related'' to a party in interest for
purposes of section I(d) of this exemption, if the party in interest
(or a person controlling, or controlled by, the party in interest) owns
a 5 percent (5%) or more interest in Deutsche, Bank or if Deutsche Bank
(or a person controlling, or controlled by, Deutsche Bank) owns a 5
percent (5%) or more interest in the party in interest. For purposes of
this definition:
(1) The term, ``interest,'' means with respect to ownership of an
entity--
(A) The combined voting power of all classes of stock entitled to
vote or the total value of the shares of all classes of stock of the
entity if entity is a corporation,
(B) The capital interest or the profits interest of the entity if
the entity is a partnership; or
(c) The beneficial interest of the entity if the entity is a trust
or unincorporated enterprise; and
(2) A person is considered to own an interest held in any capacity
if the person has or shares the authority--
(A) To exercise any voting rights, or to direct some other person
to exercise the voting rights relating to such interest, or
(B) To dispose or to direct the disposition of such interest.
(i) The ``time'' as of which any transaction occurs is the date
upon which the transaction is entered into. In addition, in the case of
a transaction that is continuing, the transaction shall be deemed to
occur until it is terminated. If any transaction is entered into on or
after the effective date of this exemption, or a renewal that requires
the consent of Deutsche Bank occurs on or after such effective date,
and the requirements of this exemption are satisfied at the time the
transaction is entered into or renewed, respectively, the requirements
will continue to be satisfied thereafter with respect to the
transaction. Notwithstanding the foregoing, this exemption shall cease
to apply to a transaction exempt by virtue of Part I or Part II at such
time as the percentage requirement contained in section I(e) is
exceeded, unless no portion of such excess results from an increase in
the assets transferred for discretionary management to Deutsche Bank.
For this purpose, assets transferred do not include the reinvestment of
earnings attributable to those plan assets already under the
discretionary management of Deutsche Bank. Nothing in this paragraph
shall be construed as exempting a transaction entered into by an
investment fund which becomes a transaction described in section 406 of
the Act or section 4975 of the code while the transaction is
continuing, unless the conditions of this exemption were met either at
the time the transaction was entered into or at the time the
transaction would have become prohibited but for this exemption.
(j) The term, ``goods'' includes all things which are movable or
which are fixtures used by an investment fund but does not include
securities, commodities, commodities futures, money, documents,
instruments, accounts, chattel paper, contract rights, and any other
property, tangible or intangible, which, under the relevant facts and
circumstances, is held primarily for investment.
(k) For purposes of section V(a) of this exemption, the term
``equity capital'' means stock (common and preferred), surplus,
undivided profits, contingency reserves and other capital reserves.
Temporary Nature of Exemption
The Department has determined that the relief provided by this
exemption will be effective retroactively but will be temporary in
nature. In this regard, Deutsche Bank, AG, among others, on July 27,
1999, obtained Prohibited Transaction Exemption 99-29 (PTE 99-29) \4\
which provided that it would not be precluded from functioning as a
``qualified professional asset manager'' (a QPAM), pursuant to
Prohibited Transaction Class Exemption 84-14 (PTCE 84-14) \5\, solely
because of a failure to satisfy section I(g) of PTCE 84-14, as a result
of a guilty plea filed by an affiliate on March 11, 1999, to three
counts of a felony. The relief provided by PTE 99-29 was limited to a
period of ten (10) years from July 27, 1999, the date of the
publication of the final exemption for PTE 99-29 in the Federal
Register. The Department in proposing the subject exemption does not
intend that, if granted, the relief, as described herein, be available
beyond the time remaining in the ten (10) year period established by
PTE 99-29. Accordingly, the relief provided by this exemption, if
granted, will be retroactive, effective as of June 12, 2001, the date
when the application for exemption was filed with the Department, and
will continue to be available through July 27, 2009, the date that is
ten (10) years from the publication in the Federal Register of the
final exemption for PTE 99-29.
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\4\ 64 FR 40623, July 27, 1999
\5\ 49 FR 9494 (March 13, 1984), as corrected, 50 FR 41430
(October 10, 1985).
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In the case of a transaction that continues beyond July 27, 2009,
the transaction shall be deemed to occur until it is terminated.
Although the relief provided by this exemption will not be available
after July 27, 2009, for any new, or other transactions that require
the consent of Deutsche Bank, as described herein, such relief will
[[Page 42076]]
continue to apply beyond July 27, 2009, for continuing transactions
entered into prior to that date, provided such transactions satisfied
the conditions of this exemption. In this regard, see section V(i)
regarding continuing transactions.
Should the Applicant wish to extend, beyond July 27, 2009, the
relief provided by this exemption to new or additional transactions, or
should the Applicant wish for any reason to amend the conditions of
this exemption, the Applicant may submit another application for
exemption. In this regard, the Department expects that prior to filing
another exemption application seeking relief for new or additional
transactions or to amend this exemption, the Applicant should be
prepared to demonstrate compliance with the conditions of this
exemption.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department of
Labor (the Department) invited all interested persons to submit written
comments and requests for a hearing on the proposed exemption within
forty-five (45) days of the date of the publication of the Notice in
the Federal Register on March 29, 2002. All comments and requests for a
hearing were due by May 13, 2002.
During the comment period, the Department received comment letters
from three (3) commentators. At the close of the comment period, the
Department forwarded copies of these comment letters to the applicant
and requested that the applicant respond in writing to the issues
raised by the commentators. The concerns expressed by these
commentators and the applicant's response thereto are summarized below.
Two commentators provided information on felony charges to which
Bankers Trust Company (BT) plead guilty in March 1999. One of these
commentators also provided background information on the applicant's
acquisition of BT and its subsidiaries in June 1999. This commentator
indicated that the applicant was aware of BT's actions before the
acquisition. Further, this commentator objected to ``substitution of
fiduciary'' proceedings in the New York State Supreme Court which
permitted Bankers Trust Company of New York to assume the fiduciary
responsibilities of BT. Further, this commentator objected to BT's name
being legally changed to Deutsche Bank Trust Company Americas without a
hearing.
Two commentators questioned the ability of the applicant, a foreign
bank, to do business in the United States. In this regard, one of these
commentators objected to funds being invested abroad or co-mingled with
Deutsche Bank managed international funds.
An advocacy group for beneficiaries and prospective creators of
irrevocable trusts, opposed the requested exemption in light of past
actions by BT. In this regard, the commentator sought new and better
standards to protect the interests of BT's clients, especially those
beneficiaries of personal trusts who lack the power to change corporate
trustees, or who for other reasons are denied the freedom to choose a
different trustee to manage the assets of such trusts.
One commentator, a member of a family trust, complained of the
applicant's refusal to settle alleged violations of New York State
banking laws regarding trusts and estates filed by his family's
attorneys against BT and affiliates of the applicant. This commentator
sought to delay a final determination on the exemption and an
opportunity to include the facts of his case in the public record at a
hearing.
In response to the comments received by the Department in
connection with the requested exemption, the applicant points out that
none of the three comments appears to have been written by a
participant in a plan covered by the Act for which Deutsche Bank has
sought relief. In addition, the substance of each of the letters
appears to relate, in substantial part, to actions by Bankers Trust
Company or to Bankers Trust Company's personal trust business, neither
of which is the subject of the exemption request. Further, the
applicant points out that in 1999, Bankers Trust Company was granted
relief similar to that requested by Deutsche Bank, the applicant in
this case. In response to the allegation raised by several commentators
that Deutsche Bank is not a U.S. Bank, the applicant maintains that
while this allegation is true, the application for exemption set forth
in significant detail the rigorous regulatory structure under which
Deutsche Bank operates, which in the applicant's view, justifies
granting the exemption.
With regard to those commentators who requested a hearing, the
Department, after reviewing the concerns of such commentators, does not
believe that there are material issues relating to the subject
exemption that were raised by commentators during the comment period
which would require the convening of a hearing. Accordingly, the
Department has determined not to delay consideration of the final
exemption by holding a hearing on application D--11002.
However, the Department has determined to clarify section I(h) of
the exemption. In this regard, Section I(h) contains safeguards
designed to ensure that plans engaging in the subject transactions are
protected. Specifically, section I(h) provides:
(h) Prior to entering into a transaction covered by this exemption
Deutsche Bank must agree in writing with a plan:
(1) That the transaction is governed by the laws of the United
States and that Deutsche Bank is a fiduciary of the plan pursuant to
the provisions of the Act;
(2) To submit to the jurisdiction of the United States district
courts;
(3) To appoint an agent for service of process in the United
States; which may be an affiliate (the Process Agent); and
(4) To consent to service of process on the Process Agent.
In addition, in the application for exemption, Deutsche Bank
represented that it would provide to any plan affected by the exemption
an indemnity against any harm, damage, or injury arising from any
fiduciary breach or other wrongdoing by Deutsche Bank Acting as asset
manager for such plan. Further, Deutsche Bank agreed that enforcement
by a plan of such indemnity would occur in the United States district
courts. These representations were summarized in paragraph 10 of the
Summary of Facts and Representations in the Notice, 67 FR 15236, column
2, lines 47-59. The Department has determined to incorporate the
content of Deutsche Bank's representations into the language of section
I(h). Accordingly, the Department has modified section I(h), as set
forth in this exemption, to add a new sub-paragraph (5) as follows:
To indemnify and hold harmless each plan affected by this
exemption in the United States against any harm, damage, or injury
(including interest and attorney's fees) arising from any fiduciary
breach or other wrongdoing of Deutsche Bank in its capacity as an
asset manager for such plan.
After giving full consideration to the entire record, including the
written comments from the commentators and the applicant's response to
such comments, the Department has decided to grant the exemption, as
described and amended, above. In this regard, the comment letters and
the applicant's response thereto submitted to the Department have been
included as part of the public record of the exemption application. The
complete application file, including all supplemental submissions
received by the Department, is made available for public inspection in
the Public Documents
[[Page 42077]]
Room of the Pension Welfare Benefits Administration, Room N-1513, U.S.
Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on March 29, 2002, at 61 FR 15230.
FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the
Department, telephone (202) 693-8551 (this is not a toll-free number).
Northwoods Bank of Minnesota Employee Stock Ownership Plan (the Plan)
Located in Park Rapids, Minnesota
[Prohibited Transaction Exemption 2002-32; Exemption Application No. D-
11031]
Exemption
The restrictions of sections 406(a), 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 proposed sale by individual accounts (the Stock
Accounts) within the Plan of Certain shares of common stock (the
Shares) of Dorset Bancshares, Incorporated (the Holding Company) to the
Holding Company, a party in interest with respect to the Plan; provided
that the following conditions are satisfied:
(a) The proposed sale is a one-time cash transaction;
(b) The Stock Accounts receive the greater of: (i) $32,000 per
Share, as currently appraised by an independent, qualified appraiser;
or (ii) the current fair market value for the Shares established at the
time of the sale by an independent qualified appraiser; and
(c) The Stock Accounts pay no commission or other expenses
associated 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 April 26, 2002 at 67 FR
20838.
For Further Information Contact: Ekaterian A. Uzlyan of the
Department at (202) 693-8540. (This is not a toll-free number.)
Morgan Stanley Dean Witter & Co. Located in New York, New York
[Prohibited Transaction Exemption No. 2002-33; Exemption Application
No. D-11048]
Exemption
Section I--Transactions
The restrictions of section 406(a)(1)(A) through (D) 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 (D) of the Code, shall
not apply, effective November 11, 2001, to:
(a) The lending of securities by an employee benefit plan,
including a commingled investment fund holding assets of such plan (the
Plan(s)) with respect to which Morgan Stanley Dean Witter & Co. (Morgan
Stanley) or any of its affiliates is a party in interest, under certain
exclusive borrowing arrangements with:
(1) Morgan Stanley;
(2) Morgan Stanley & Co. Incorporated (MS&Co); MS Securities
Services Inc. (MSSSI); and any other affiliate of Morgan Stanley that,
now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer (collectively, the MS US Broker-
Dealers);
(3) Morgan Stanley & Co. International Limited (MSIL), which is
subject to regulation by the Financial Services Authority (FSA) in the
United Kingdom; \6\
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\6\ As of December 1, 2001, the FSA replaced the United Kingdom
Securities and Futures Authority.
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(4) Morgan Stanley Japan Limited (MSJL), which is subject to
regulation by the Ministry of Finance, Financial Services Agency, the
Tokyo Stock Exchange, and the Osaka Stock Exchange in Japan; and
(5) Any broker-dealer that, now or in the future, is an affiliate
of Morgan Stanley which is subject to regulation by the FSA in the
United Kingdom or which is subject to regulation by the Ministry of
Finance, the Financial Services Agency, the Tokyo Stock Exchange, and
the Osaka Stock Exchange in Japan; \7\ and
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\7\ Each affiliated foreign broker-dealer is referred to herein,
individually, as a Foreign Borrower or collectively, as Foreign
Borrowers. The Foreign Borrowers together with Morgan Stanley and
the MS US Broker-Dealers are referred to, herein, collectively as
Borrowers or Applicants, and individually, as the Borrower.
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(b) The receipt of compensation by Morgan Stanley or any of its
affiliates in connection with securities lending transactions; provided
that for the transactions, set forth in section I(a) and (b), above,
the conditions set forth in section II, below, are satisfied.
Section II--Conditions
(a) For each Plan, neither the Borrower nor any affiliate has or
exercises discretionary authority or control over such Plan's
investment in the securities available for loan, nor do they render
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with
respect to those assets.
(b) The party in interest dealing with the Plan is a party in
interest with respect to such Plan (including a fiduciary) solely by
reason of providing services to such Plan, or solely by reason of a
relationship to a service provider described in section 3(14)(F), (G),
(H), or (I) of the Act.
(c) The Borrower directly negotiates an exclusive borrowing
agreement (the Borrowing Agreement) with the Plan fiduciary which is
independent of the Borrower and its affiliates.
(d) The terms of each loan of securities by the Plan to the
Borrower are at least as favorable to such Plan as those of a
comparable arm's-length transaction between unrelated parties, taking
into account the exclusive arrangement.
(e) In exchange for granting the Borrower an exclusive right to
borrow certain securities, the Plan receives from such Borrower either
(i) a flat fee (which may be equal to a percentage of the value of the
total securities subject to the Borrowing Agreement from time to time),
(ii) a periodic payment that is equal to a percentage of the value of
the total balance of outstanding borrowed securities, or (iii) any
combination of (i) and (ii) (collectively, the Exclusive Fee). If the
Borrower pledges cash collateral, all the earnings generated by such
cash collateral shall be returned to such Borrower; provided that such
Borrower may, but shall not be obligated to, agree with the independent
fiduciary of the Plan that a percentage of the earnings on the
collateral be retained by such Plan, and/or the Plan may agree to pay
the Borrower a rebate fee and retain any earnings on the collateral
(the Shared Earnings Compensation). If the Borrower pledges non-cash
collateral, all earnings on the non-cash collateral shall be returned
to such Borrower; provided that the Borrower may, but shall not be
obligated to, agree to pay the Plan a lending fee (the Lending Fee, and
together with the Shared Earnings Compensation, is referred to as the
Transaction Lending Fee). The Transaction Lending Fee, if any, shall be
either in addition to the Exclusive Fee or an offset against the
Exclusive Fee. The Exclusive Fee and the Transaction Lending Fee may be
determined in advance or pursuant to an objective
[[Page 42078]]
formula and may be different for different securities or different
groups of securities subject to the Borrowing Agreement. Any change in
the Exclusive Fee or the Transaction Lending Fee that the Borrower pays
to the Plan with respect to any securities loan requires the prior
written consent of the independent fiduciary of such Plan, except that
consent is presumed where the Exclusive Fee or the Transaction Lending
Fee changes pursuant to an objective formula. Where the Exclusive Fee
or the Transaction Lending Fee changes pursuant to an objective
formula, the independent fiduciary of the Plan must be notified at
least 24 hours in advance of such change and such independent Plan
fiduciary must not object in writing to such change, prior to the
effective time of such change.
(f) The Borrower may, but shall not be required to, agree to
maintain a minimum balance of borrowed securities subject to the
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar
amount, a flat percentage or other percentage determined pursuant to an
objective formula.
(g) By the close of business on or before the day on which the
loaned securities are delivered to the Borrower, the Plan receives from
such Borrower (by physical delivery, book entry in a securities
depository located in the United States, wire transfer, or similar
means) collateral consisting of U.S. currency, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable bank letters of credit issued by a U.S. bank, other than
the Borrower or any affiliate thereof, or any combination thereof, or
other collateral permitted under Prohibited Transaction exemption 81-6
(as amended or superseded) (PTE 81-6).\8\ Such collateral will be
deposited and maintained in an account which is separate from the
Borrower's accounts and will be maintained with an institution other
than the Borrower. For this purpose, the collateral may be held on
behalf of the Plan by an affiliate of the Borrower that is the trustee
or custodian of the Plan.
---------------------------------------------------------------------------
\8\ 46 FR 7527, Jan. 23, 1981, as amended at 52 FR 18754, May
19, 1987). PTE 81-6 provides an exemption under certain conditions
from section 406(a)(1)(A) through (D) of the Act and the
corresponding provisions of section 4975(c) of the Code for the
lending of securities that are assets of an employee benefit plan to
a U.S. broker-dealer registered under the Securities Exchange Act of
1934 (the 1934 Act) (or exempted from registration under the 1934
Act as a dealer in exempt Government securities, as defined therein)
or to a U.S. bank, that is a party in interest with respect to such
plan.
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(h) The market value (or in the case of a letter of credit, the
stated amount) of the collateral initially equals at least 102 percent
(102%) of the market value of the loaned securities on the close of
business on the day preceding the day of the loan and, if the market
value of the collateral at any time falls below 100 percent (100%) (or
such higher percentage as the Borrower and the independent fiduciary of
the Plan may agree upon) of the market value of the loaned securities,
the Borrower delivers additional collateral on the following day to
bring the level of the collateral back to at least 102 percent (102%).
The level of the collateral is monitored daily by the Plan or its
designee, which may be Morgan Stanley or any of its affiliates which
provides custodial or trustee services in respect of the securities
covered by the Borrowing Agreement for the Plan. The applicable
Borrowing Agreement shall give the Plan a continuing security interest
in, title to, or the rights of a secured creditor with respect to the
collateral and a lien on the collateral.
(i) Before entering into a Borrowing agreement, the Borrower
furnishes to the Plan the most recent publicly available audited and
unaudited statements of its financial condition, as well as any
publicly available information which it believes is necessary for the
independent fiduciary to determine whether such Plan should enter into
to renew the Borrowing Agreement.
(j) The Borrowing Agreement contains a representation by the
Borrower that, as of each time it borrows securities, there has been no
material adverse change in its financial condition since the date of
the most recently furnished statements of financial condition.
(k) The Plan receives the equivalent of all distributions made
during the loan period, including, but not limited to, cash dividends,
interest payments, shares of stock as a result of stock splits, and
rights to purchase additional securities, that such Plan would have
received (net of tax withholdings) \9\ had it remained the record owner
of the securities.
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\9\ The Department notes the Applicants' representation that
dividends and other distributions on foreign securities payable to a
lending Plan are subject to foreign tax withholdings and that the
Borrower will always put the Plan back in at least as good a
position as it would have been had it not loaned securities.
---------------------------------------------------------------------------
(l) The Borrowing Agreement and/or any securities loan outstanding
may be terminated by either party at any time without penalty (except
for, if the Plan has terminated its Borrowing Agreement, the return to
the Borrower of a pro-rata portion of the Exclusive Fee paid by the
Borrower to the Plan) whereupon the Borrower delivers securities
identical to the borrowed securities (or the equivalent thereof in the
event of reorganization, recapitalization, or merger of the issuer of
the borrowed securities) to the Plan within the lesser of five (5)
business days of written notice of termination or the customary
settlement period for such securities.
(m) In the event that the Borrower fails to return securities in
accordance with the Borrowing Agreement, the Plan will have the right
under the Borrowing Agreement to purchase securities identical to the
borrowed securities and apply the collateral to payment of the purchase
price. If the collateral is insufficient to satisfy the Borrower's
obligation to return the Plan's securities, the Borrower will indemnify
the Plan in the U.S. with respect to the difference between the
replacement cost of securities and the market value of the collateral
on the date the loan is declared in default, together with expenses
incurred by the Plan plus applicable interest at a reasonable rate,
including reasonable attorneys' fees incurred by the Plan for legal
action arising out of default on the loans, or failure by the Borrower
to properly indemnify the Plan.
(n) Except as otherwise provided herein, all procedures regarding
the securities lending activities, at a minimum, conform to the
applicable provisions of PTE 81-6 (as amended or superseded), as well
as to applicable securities laws of the United States, the United
Kingdom and/or Japan, as appropriate.
(o) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to lend securities to the
Borrowers; provided, however, that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan
Asset Regulation), which entity is engaged in securities lending
arrangements with the Borrowers, the foregoing $50 million requirement
shall be deemed satisfied if such trust or other entity has aggregate
assets which are in excess of $50 million; provided that if the
fiduciary responsible for making the investment decision on
[[Page 42079]]
behalf of such master trust or other entity is not the employer or an
affiliate of the employer, such fiduciary has total assets under its
management and control, exclusive of the $50 million threshold amount
attributable to plan investment in the commingled entity, which are in
excess of $100 million.
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are commingled for
investment purposes in a group trust or any other form of entity the
assets of which are ``plan assets'' under the Plan Asset Regulation,
which entity is engaged in securities lending arrangements with the
Borrowers, the foregoing $50 million requirement is satisfied if such
trust or other entity has aggregate assets which are in excess of $50
million (excluding the assets of any Plan with respect to which the
fiduciary responsible for making the investment decision on behalf of
such group trust or other entity or any member of the controlled group
of corporations including such fiduciary is the employer maintaining
such Plan or an employee organization whose members are covered by such
Plan). However, the fiduciary responsible for making the investment
decision on behalf of such group trust or other entity--
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million. (In
addition, none of the entities described above are formed for the sole
purpose of making loans of securities.)
(p) Prior to any Plan's approval of the lending of its securities
to the Borrowers, a copy of the notice of proposed exemption, and a
copy of the final exemption are provided to the Plan, and the Borrower
informs the independent fiduciary that the Borrower is not acting as a
fiduciary of the Plan in connection with its borrowing securities from
the Plan.\10\
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\10\ The Department notes the Applicants' representation that,
under the proposed exclusive borrowing arrangements, neither the
Borrower nor any of its affiliates will perform the essential
functions of a securities lending agent, i.e., the Applicants will
not be the fiduciary who negotiates the terms of the Borrowing
Agreement on behalf of the Plan, the fiduciary who identifies the
appropriate borrowers of the securities or the fiduciary who decides
to lend securities pursuant to an exclusive arrangement. However,
the Applicants or their affiliates may monitor the level of
collateral and the value of the loaned securities.
---------------------------------------------------------------------------
(q) The independent fiduciary of the Plan receives monthly reports
with respect to the securities lending transactions, including but not
limited to the information set forth in this paragraph, so that an
independent Plan fiduciary may monitor such transactions with the
Borrowers. The monthly report will list for a specified period all
outstanding or closed securities lending transactions. The report will
identify for each open loan position, the securities involved, the
value of the security for collateralization purposes, the current value
of the collateral, the rebate or premium (if applicable) at which the
security is loaned, and the number of days the security has been on
loan. At the request of the Plan, such a report will be provided on a
daily or weekly basis, rather than a monthly basis. Also, upon request
of the Plan, the Borrower will provide the Plan with daily
confirmations of securities lending transactions.
(r) In addition to the above conditions, all loans involving
Foreign Borrowers must satisfy the following supplemental requirements:
(1) Such Foreign Borrower is a registered broker-dealer subject to
regulation by the FSA in the United Kingdom or is subject to regulation
in Japan by the Ministry of Finance, the Financial Services Agency, the
Tokyo Stock Exchange, and the Osaka Stock Exchange;
(2) Such Foreign Borrower is in compliance with all applicable
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the 1934 Act which
provides foreign broker-dealers a limited exception from United States
registration requirements;
(3) All collateral is maintained in United States dollars or in
U.S. dollar-dominated securities or letters of credit or such other
collateral as may be permitted under PTE 81-6 (as amended or
superseded) from time to time;
(4) All collateral is held in the United States and the situs of
the Borrowing Agreement is maintained in the United States under an
arrangement that complies with the indicia of ownership requirements
under section 404(b) of the Act and the regulations promulgated under
29 C.F.R. 2550.404(b)-1; and
(5) Prior to entering into a transaction involving a Foreign
Borrower, the Foreign Borrower must:
(i) Agree to submit to the jurisdiction of the United States;
(ii) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(iii) Consent to the service of process on the Process Agent; and
(iv) Agree that enforcement by a Plan of the indemnity provided by
the Foreign Borrower will occur in the United States courts.
(s) The Borrower maintains, or causes to be maintained, within the
United States for a period of six (6) years from the date of each
transaction, in a manner that is convenient and accessible for audit
and examination, such records as are necessary to enable the persons
described in paragraph (t)(1) to determine whether the conditions of
the exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to the circumstances beyond the control of Morgan
Stanley and/or its affiliates, the records are lost or destroyed prior
to the end of the six (6) year period; and
(2) No party in interest other than the Borrower 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 below by paragraph (t)(1).
(t)(1) Except as provided in subparagraph (t)(2) of this paragraph
and notwithstanding any provision of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to the paragraph (s) are
unconditionally available at their customary location for examination
during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Interests Revenue Service or the Securities and
Exchange Commission (SEC);
(ii) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employee; and
(iv) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs
(t)(1)(ii)-(t)(1)(iv) are authorized in examine to trade secrets of
Morgan Stanley or its affiliates or commercial or financial information
which is privileged or confidential.
Section III--Definitions
(a) An ``affiliate'' of a person means:
(i) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person. (For purposes of this paragraph, the term
[[Page 42080]]
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual);
(ii) Any officer, director, employee or relative (as defined in
section 3(15) of the Act) of any such other person or any partner in
any such person; and
(iii) Any corporation or partnership of which any person is an
officer, director of employee, or in which such person is a partner.
(b) The terms, ``Foreign Borrower'' or ``Foreign Borrowers,''
includes MSIL and any broker-dealer that, now or in the future, is an
affiliate of Morgan Stanley which is subject to regulation by the FSA
in the United Kingdom, and MSJL, and any broker-dealer that, now or in
the future, is an affiliate of Morgan Stanley which is subject to
regulation by the Ministry of Finance, Financial Services Agency, the
Tokyo Stock Exchange, and the Osaka Stock Exchange in Japan.
(c) The term ``Borrower,'' includes Morgan Stanley, MS&Co, MSSSI,
the Foreign Borrowers, and any other affiliate of Morgan Stanley that,
now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer.
Effective Date: This exemption is effective as of November 11,
2001, the date of the application was received by the Department.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department of
Labor (the Department) invited all interested persons to submit written
comments and requests for a hearing on the proposed exemption within
forty-five (45) days of the date of the publication of the Notice in
the Federal Register on March 29, 2002. All comments and requests for a
hearing were due by May 13, 2002.
During the comment period, the Department received no requests for
a hearing. However, the Department did receive a comment letter from
the Applicants. In this regard, in a letter dated May 13, 2002, the
Applicants requested certain amendments to the operant language of the
exemption and the representations which were set forth in the Summary
of Facts and Representations (the SFR) published in the Notice.
A discussion of the Applicants' comments and the Department's
responses, thereto, are set forth in the numbered paragraphs below. In
the language below, words that have been stricken from the text of
Notice appear in the closed brackets, and additions to the text of the
Notice appear in bold.
1. The Applicants request that the effective date of the exemption,
referred to in the first paragraph of section I of the Notice be
changed to November 11, 2001, in order to conform to the date set forth
at the end of section III of the Notice. In this regard, the Applicants
request the language of section I should read as follows:
The restrictions of section 406(a)(1)(A) through (D) 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 (D) of the
Code, shall not apply, effective November 11 [13], 2001, to:
The Department concurs and has amended the language, as set forth
in the Notice at 67 FR at 15241, column 1, line 20.
2. The Applicants request that the second sentence of section II(e)
be clarified such that the independent fiduciary can agree that the
Plan retain a percentage of the earnings and/or pay a rebate fee and
retain any earnings. In this regard the Applicants propose that the
second sentence in section II(e) should read as follows:
If the Borrower pledges cash collateral, all the earnings
generated by such cash collateral shall be returned to such
Borrower; provided that such Borrower may, but shall not be
obligated to, agree with the independent fiduciary of the Plan that
a percentage of the earnings on the collateral [may] be retained by
such Plan, and/or the Plan may agree to pay the Borrower a rebate
fee and retain [the] any earnings on the collateral (the Shared
Earnings Compensation).
The Department concurs and has amended the language, as set forth
in the Notice at 67 FR at 15241, column 3, lines 23-34.
3. The Applicants requests that the second paragraph of
Representation 2 of the SFR as published in the Notice be modified to
conform to the comparable language contained in the second paragraph of
Representation 2 of the SFR of the proposed exemption for Barclays Bank
PLC, which was published in the Federal Register on June 28, 2001\11\
and later published in final form on October 22, 2001 as Prohibited
Transaction Exemption 2001-41.\12\ In this regard, the Applicants
propose that the second paragraph of Representation 2, as set forth in
the Notice at 67 FR at 15244, column 2, lines 13 through 25, should
have read as follows:
\11\ 66 FR 34475.
\12\ 66 FR 53449.
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The Applicants wish to enter into exclusive borrowing
arrangements with Plans for which Morgan Stanley or any affiliate of
Morgan Stanley may be [an investment manager] a party in interest
[for the assets of such Plans that are unrelated to the assets
involved in the transaction]. For example, Morgan Stanley or an
affiliate may be investment manager for assets of a Plan that are
unrelated to the assets involved in the transaction. Morgan Stanley
or any of its affiliates may provide securities custodial services,
trustee services, clearing and/or reporting functions in connection
with securities lending transactions, or other services to such
Plans.
The Department concurs.
After giving full consideration to the entire record, including the
written comments from the Applicants, the Department has decided to
grant the exemption, as described, amended, clarified, and concurred in
above. In this regard, the comment letter submitted by the Applicants
to the Department has been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor,
200 Constitution Avenue, NW., Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on March 29, 2002, at 67 FR 15241.
For Further Information Contact: Angelena C. Le Blanc of the
Department, telephone (202) 693-8540. (This is not a toll-free number.)
Louisville Electrical Joint Apprentice and Training Committee Trust
Fund (the Fund) Located in Louisville, Kentucky
[Prohibited Transaction Exemption No. 2002-34; Exemption Application
No: L-10981]
Exemption
The restrictions of sections 406(a)(1)(A) through (D), 406(b)(1),
and 406(b)(2) of the Act shall not apply to the purchase of the Fund of
an interest in a condominium regime (the Condo) from the International
Brotherhood of Electrical Workers (IBEW), Local 369 Building
Corporation (the Building Corporation), a party in interest with
respect to the Fund; provided that, at the time the transaction is
entered into, the following conditions are satisfied:
(1) The purchase of the Fund of the interest in the Condo is a one-
time transaction for cash;
(2) The Board of Trustees (the Trustees), acting as named fiduciary
on behalf of the Fund, prior to entering the
[[Page 42081]]
transaction, determine that the transaction is feasible, in the
interest of the Fund, and protective of the participants and
beneficiaries of the Fund;
(3) An independent qualified fiduciary (the I/F) after analyzing
the relevant terms of the transaction advises the Trustees that
proceeding with the transaction would be in the interest in the Fund;
(4) The purchase price paid by the Fund for the interest in the
Condo is the lesser of: (a) the total amount actually expended by the
Building Corporation in the construction of the north wing unit (the
Unit) of the condominium building (the Condo Building), as documented
in writing and approved by the I/F, plus the value of that portion of
the land underlying such Unit, which is equivalent to the percentage of
the square footage of such Unit to the total square footage in the
Condo Building, plus the value of the same portion of any other common
elements of the Condo; or (b) the fair market value of the Fund's
interest in the Condo, as determined by an independent, qualified
appraiser, as of the date of the transaction, provided that such value
does not exceed $2,655,000, the fair market value of the Fund's
interest in the Condo, as determined by such independent, qualified
appraiser, as of December 11, 2001;
(5) The terms of the transaction are no less favorable to the Fund
than terms negotiated under similar circumstances at arm's length with
unrelated third parties;
(6) The Fund does not purchase the interest in the Condo or take
possession of the Unit in the Condo Building until such Unit is
substantially completed;
(7) The Fund has not been, is not, and will not be a party to the
construction financing loan or the permanent financing loan between the
IBEW, Local Union 369 (the Local) and the Bank of Louisville (the
Bank);
(8) The Fund does not pay any commissions, sales fees, or other
similar payments to any party as a result of the subject transaction,
and the costs incurred in connection with the purchase by the Fund at
closing does not include, directly or indirectly, interest incurred by
the Building Corporation on the construction financing loan or the
permanent financing loan from the Bank;
(9) Under the terms of the loan agreement between the Bank and the
Fund, the Bank in the event of a default by the Fund has recourse only
against the interest in the Condo and not against the general assets of
the Fund; and
(10) Under the terms of the loan agreement between the Bank and the
Building Corporation, in the event of default by the Building
Corporation, the Bank has no recourse against any assets of the Fund.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on April 26, 2002, at 67 FR 20839.
Further Information Contact: Angelena C. Le Blanc of the
Department, telephone (202) 693-8540 (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 17th day of June, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 02-15625 Filed 6-19-02; 8:45 am]
BILLING CODE 4510-29-M